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I wonder, how low does crypto need to fall before coinbase becomes non-viable?

by jf- 8y ago

rotskoff 8y ago
It's an interesting and complicated question, but it seems like the coinbase business model should be pretty dramatically affected by the massive sell-off. First, as prices go lower, the average value of a transaction is (probably) declining, so the money they make on fees is (probably) going down as well. Second, as the market looks worse and worse, the number of people casually entering or trading is likely declining too. The have a lot of correlated risk with the decline.
- gfodor 8y ago
  The impact of the variables you mention can't be assessed without understanding the internals of their business. For example, if they have a lot of fixed or hard-to-change operating costs (like headcount) that have been taken on that now assume a certain amount of transaction volume, you may be right. But if they have just had their average revenue per employee spike over the last 18 months (after all, ETH is trading where it was in May last year) then what we just went through was more of a windfall-laden anomaly for their business to accrue a rainy day fund not necessarily something they were dependent upon. In any case, given the volatility of crypto and the survivorship of Coinbase vs all other exchanges, it'd be surprising to me if they didn't manage their business in a way that assumed a 10X cut in price could happen at any time.
  - mcfunley 8y ago
    Greg would it really surprise you if a tech startup turned out to have done something stupid
    - gfodor 8y ago
      Haha no not in general, but at this point Coinbase has survived some pretty severe market swings, so if you ask me with no additional info (of which I have basically none on Coinbase) I'd assume they at least have some institutional awareness that a 90% drop in all the coins they offer is not perceived to be an "INF sigma" event. (Which it probably was perceived as for a vast number of the know-nothing ICO schemes)
Swizec 8y ago
Don’t they live off of transaction fees? My understanding is Coinbase makes sense as long as people are using crypto regardless of absolute numbers involved in individual transactions. Banks are very valuable despite their tokens being worth only $1
- Analemma_ 8y ago
  That’s what everyone said about Mt. Gox too: “they can’t be insolvent, they make so much money in txn fees!” That seemed like an airtight argument until it suddenly wasn’t.

I wonder, how low does crypto need to fall before coinbase becomes non-viable?

by jf- 8y ago

I wonder, how low does crypto need to fall before coinbase becomes non-viable?

It's an interesting and complicated question, but it seems like the coinbase business model should be pretty dramatically affected by the massive sell-off. First, as prices go lower, the average value of a transaction is (probably) declining, so the money they make on fees is (probably) going down as well. Second, as the market looks worse and worse, the number of people casually entering or trading is likely declining too. The have a lot of correlated risk with the decline.

gfodor 8y ago
The impact of the variables you mention can't be assessed without understanding the internals of their business. For example, if they have a lot of fixed or hard-to-change operating costs (like headcount) that have been taken on that now assume a certain amount of transaction volume, you may be right. But if they have just had their average revenue per employee spike over the last 18 months (after all, ETH is trading where it was in May last year) then what we just went through was more of a windfall-laden anomaly for their business to accrue a rainy day fund not necessarily something they were dependent upon. In any case, given the volatility of crypto and the survivorship of Coinbase vs all other exchanges, it'd be surprising to me if they didn't manage their business in a way that assumed a 10X cut in price could happen at any time.
- mcfunley 8y ago
  Greg would it really surprise you if a tech startup turned out to have done something stupid
  - gfodor 8y ago
    Haha no not in general, but at this point Coinbase has survived some pretty severe market swings, so if you ask me with no additional info (of which I have basically none on Coinbase) I'd assume they at least have some institutional awareness that a 90% drop in all the coins they offer is not perceived to be an "INF sigma" event. (Which it probably was perceived as for a vast number of the know-nothing ICO schemes)

Swizec 8y ago

Don’t they live off of transaction fees? My understanding is Coinbase makes sense as long as people are using crypto regardless of absolute numbers involved in individual transactions. Banks are very valuable despite their tokens being worth only $1

Analemma_ 8y ago
That’s what everyone said about Mt. Gox too: “they can’t be insolvent, they make so much money in txn fees!” That seemed like an airtight argument until it suddenly wasn’t.