New Constructs says Coinbase's valuation should actually be $18.1 billion — 81.9% less than it is now.
Coinbase’s $100 billion valuation is “ridiculously high” — and the company has “little to no chance” of meeting the future profit expectations that it brings, a research firm has warned.
In a damning report, New Constructs predicted that crypto exchanges will soon begin a race to the bottom in terms of transaction fees, just like they did among platforms that specialize in stocks. Looking ahead, the company expects some of Coinbase’s biggest rivals will slash their fees to zero in an attempt to wrestle away market share. Author Kyle Ruske wrote:
“The crypto markets are very young, and we expect many more companies to compete for the profits Coinbase enjoys today. As the cryptocurrency market matures, we expect Coinbase’s transaction margins to drop precipitously.”
What Coinbase ‘Should Really Be Worth’
According to New Constructs, a $100 billion price tag implies Coinbase’s revenue would be one-and-a-half times higher than the combined annual revenues of the Nasdaq and Intercontinental Exchange last year.
Based on its calculations, Coinbase’s valuation should be closer to $18.9 billion — a decrease of 81.9%.
Ruske also warned that the crypto market remains far from mainstream, with figures suggesting just 9% of American adults invest in digital assets… and 66% have no interest in gaining exposure to cryptocurrencies like Bitcoin.
And even among the customers it does have, New Constructs says the average 0.57% in fees collected for every transaction by Coinbase, which made up 86% of revenue in 2020, are unsustainably high.
The firm estimates that the exchange’s profitability could fall by 98% once the crypto market reaches maturity — and adds that there are risks for investors. Ruske claims that public shareholders can “little to no say over corporate governance” because these investors will have less than 17% of voting power. He also says Coinbase has a “heavy reliance on Bitcoin and Ethereum” — and warns the exchange could see significant cuts to its trading volume and revenues if demand falls. This latter point seems underdeveloped, as there would be nothing stopping the exchange from listing the rival coins that benefit from any slump in popularity.