Standing out from the Crypto crowd
Our experts’ take on the Coinbase IPO and how we aim to identify future blockchain applications in global equity.
Coinbase (COIN) went public with a bang. While crypto-evangelists celebrate the IPO as the dawn of a new era, crypto-sceptics don’t get tired of comparing the historic stock market launch to Netscape’s IPO in 1990 — the company that first heralded a movement and then burst with the dotcom-bubble. At The Singularity Group (TSG), we’re specialized in identifying applied innovation, which means nothing else than separating the Googles and Apples from the Netscapes and Nokias.
While Coinbase is more of a cryptocurrency exchange and trading platform than a blockchain application, the question is: How can investors benefit from blockchain-driven business models? We suggest: by being patient and monitoring where value is being created — that’s where we rely on our Expert Advisory Board, a global Innovation Think Tank of leading practitioners, scientists, and entrepreneurs. This is also why currently the Singularity Portfolio’s active blockchain exposure predominantly lies in companies involved in cryptocurrency, be it mining, trading, or exchanges. A closer look, however, suggests it is geared to future blockchain winners as well. Oure experts highlight some of these in the following remarks: among the names mentioned are PayPal, Microstrategy, CME Group, PayPal, Facebook, Google, Square and two companies from our broader Singularity Universe, Galaxy Digital, Coinbase peer Silvergate Capital, and OSL (Hong Kong). What these companies have in common is our main filter criteria when building innovation portfolios: substantial revenue creation attributable to one or more ‘Singularity Sectors’ — also known as exponential technologies, including Artificial Intelligence (AI), Big Data, Internet of Things (IOT), to name a few.
This is what the Singularity Group’s Expert Advisory Board members say about COIN and investing in blockchain:
John Orthwein, Head of Blockchain and Decentralized Finance at i.AM Innovation Lab:
“The listing of Coinbase represents lots of hype, but hype that is likely justified with fundamentals (users, EBITDA, AUM, etc.). This will be turning the heads of institutional investors and will be a major contributing factor to the mainstreaming and ‘no-brainer acceptance’ of blockchain and crypto in the near term. It also likely represents a reluctant and tacit acceptance by the US government and regulators: They will have to live with crypto, and they will prefer to have the 800lb gorilla in their own backyard, rather than ban it and have it go away or be built in another jurisdiction. The crypto pros do not need Coinbase, but it will likely be an important service to the vast majority of people with an interest in the tech and the desire for crypto investment exposure/returns.”
Tommaso Bonanata, Head of Investment Management at Base58 Capital:
“Coinbase has grown to become an important pillar for the industry by providing a set of essential services ranging from trading access for both retail and professional investors, institutional-grade cold storage custody, and different Blockchain infrastructure solutions. It has grown both organically and through acquisitions. The latest ones worth mentioning are Tagomi, a top-tier 1 prime brokerage company, and Bison Trails, a blockchain infrastructure platform-as-a-service (PaaS) company. As Crypto made a big comeback in Q4 2020 and Q1 2021, the momentum has pushed the company valuation to relatively high levels, implying that growth in revenues and margins will remain strong in the years to come. I don’t doubt that growth in both users and trading volumes won’t be met, but margin compression is likely in such a competitive environment over time. As for exposure to crypto among US publicly listed companies, you can’t get a better exposure to the picks and shovels of crypto than through Coinbase (for now).”
Laurenz Apiarius, Founder and Managing Partner at Blockwall:
“The attention-grabbing IPO of Coinbase is net positive for the crypto ecosystem and a good success story for this new tech industry. It is quite US-centric as it is THE relevant player in the US. There are competitors (FTX and Binance) that are (subjectively) much better, but younger and smaller and tackle a different part of the market. I am torn in equal weights between being convinced that its valuation is only that high because it is timed perfectly within a bitcoin bull market AND it is sort of a bridge investment for those investors who cannot or do not want to hold bitcoin directly. I predict that as long as this bull market continues (and the FED continues to expand its monetary base), COIN will increase in value and continue to grow revenue. Even though I do expect a strong downward correlation when markets will correct, COIN will most likely continue to remain highly profitable in a bear market but its stock price will be priced accordingly.
Other than that, I quite like: Galaxy Digital and OSL (Hong Kong). Facebook, PayPal and Square will experience a growing relevance through their crypto services and as prime points of contact for millennials.”
Investing in innovation as it happens: The silent enablers and obvious pioneers in the blockchain space
The Singularity Fund’s actual exposure to blockchain applications is bigger and more diversified than the sector allocation suggests. Whereas companies like Square are amongst the pioneers that directly generate revenue through blockchain technology already, we also capture contributors like IBM (infrastructure) or Nvidia. The latter is one of the major enablers by providing specific Crypto Mining Processors (CMPs), e.g. for professional mining. Google Cloud is actively interested in public blockchains and distributed ledger technology (DLT), and the company emphasized one of its main interests was hosting nodes on Google Cloud. Google also acquires and invests heavily in the blockchain space. Facebook recently introduced Diem, a blockchain-based payment system. Since March 30, US PayPal customers can use the “Checkout with Crypto” feature to pay for goods online. Visa has rolled out a crypto roadmap, and today is the network behind many crypto wallets — Coinbase amongst them.
In short, it seems as if the innovation drivers of today also shape the blockchain applications of tomorrow. They simply don’t specifically appear within the Singularity Sector “Blockchain” (yet), but under the umbrella of their most dominant area of applied innovation, e.g. “Artificial Intelligence” — or where most value is being generated. However, a company’s engagement is assessed for all of the 12 Singularity Sectors. They each add up to what we call the Singularity Score and their individual weight may change over time. That’s what makes our matrix and strategy so contemporary. We don’t invest in hype or assumptions, but in innovation where and when it actually happens at any point in time.
Author: Katharina Boehringer, CCO at The Singularity Group
