Vladimir Smetanin, CEO of Swiss financial company New cent, on why the price of securities of the first public cryptocurrency will rise.
The idea is to offer even skeptical investors a way to make money on the growth of digital assets without going into a discussion about the intrinsic value of bitcoin and Ethereum, not to mention Dogecoin.
We offer a standard approach to the analysis of this investment, perhaps even too “old-school” – market, company, FCF forecast, risks.
Coinbase, the largest cryptocurrency exchange in the world (by fiat cryptocurrency turnover), recently had a direct listing of shares, after which their price fell from a peak of $342 per share to $208, and now trades at $257. The market is recovering, Q2 earnings are positive, and the company is implementing new growth areas. Competitors have regulatory difficulties, Coinbase does not. We think it could be a good long-term investment for several years.
The digital asset market is growing and will continue to grow. It is already an established $2 trillion asset class. Yes, there is a lot of volatility, yes, there are a lot of failed and strange projects. Yes, the regulatory environment is not 100% clear and worked out, and fraudsters are interested in the market. Yes, monetization of projects and business models are not always obvious at the moment. But it always has been and always will be with all new industries. The critical mass has already accumulated, and a lot of interesting things are waiting for us, and most importantly, the market will continue to grow.
Coinbase is the undisputed market leader in North America, has been operating since 2012 and provides a full range of services for individual and institutional investors – from trading to storage, insurance, many services to integrate cryptoassets into different business models, securitization and new token launches. The company has 21% market share in fiat cryptocurrency-fiat turnover, second only to Binance cryptocurrency exchange in cryptocurrency-fiat turnover.
FCF forecast – the company’s valuation is $68 billion, revenue for the last 12 months is $5 billion, net income is $2.6 billion. The valuation multiplier to EBITDA is x17, which is certainly not small, but significantly lower than other projects, such as Robinhood – x93.
According to Q2 results, the company increased its turnover by 37% to $462 billion and the number of active users grew by 44% to 8.8 million. (those who made at least one transaction in the last month). The share of institutional clients is also growing – now about 60%.
We predict that the growth will continue, and even if the market is in the bitcoin price range of $30-45 thousand per coin, the company’s turnover and EBITDA will be significant.
If the average quarterly revenue remains at the level of the first half of the year, the company’s year-end revenue could be $8 billion and net income at $4.5 billion. Which even with the multiples remaining, could give a gain to valuation of 12%.
If the macro market as a whole moves into an inflationary phase and the narrative that cryptocurrency is one way to combat it, Coinbase’s numbers could be even more interesting.
Risks
1. Regulatory – we think it is minimal, the company employs many people from the SEC, investors Goldman Sachs and other respected banks, there should not be any unforeseen troubles, the project team has worked well on this;
2. Market – the fear that something negative will happen to the crypto market tomorrow and it will be over. We consider this risk to be minimal, but even if some of the worst-case scenario materializes, there will be a lot of turmoil in the market and a huge amount of liquidation of positions on the platform, which will lead to good turnover and revenues;
3. Team and corporate conflicts – here too we do not see a significant risk, the company has a highly professional team;
4. Bitcoin price can go to $30K or lower, which can lead to a drawdown of the company’s shares again to $200K or lower, which will lead to a 25% loss of capital. But such a scenario seems unlikely to be long-term for us.
There is, of course, the risk of hacking and, consequently, loss of funds. But the company has insurance coverage and, most importantly, a good degree of protection of digital assets.
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