The market is worried about Coinbase’s solvency.

Here’s what I know:
Coinbase bonds are trading at a massive discount, about 50% to par value.

The bonds are yielding 16%. A yield that high is a sign that investors are worried about the company’s ability to make the interest payments.
Back in May, Coinebase’s CFO warned that there was a “small risk of bankruptcy”.

Not something a perfectly healthy business would say.

Coinbase CEO Brian Armstrong is defending his company’s financials after Binance CEO CZ suggested that Coinbase may not actually have enough reserves

However, CZ deleted the tweet and retracted the statement

Here’s the deleted tweet from CZ:
Unlike FTX, Coinbase is an SEC-regulated company with much higher reporting standards, so they have to be more transparent.

According to their latest 10-Q, Coinbase holds over $95 billion in customer crypto assets, plus $6.5 billion in US dollars held on behalf of customers.
Here’s the asset portion of Coinbase’s balance sheet below.

At least with Coinbase we have access to these numbers, unlike FTX.
Coinbase stock is down 83% since it debuted last spring.

It went from trading around $340 to $43 today.

I wonder if Cramer still likes it to $475
Coinbase has a fairly high short interest: About 17% of the float is being shorted.

Legendary short seller Jim Chanos said that Coinbase is ““symptomatic of the predatory junkyard that is crypto”

His short thesis:
Coinbase requires very high trading volumes to make enough commissions to cover its massive operational costs.

But with cryptocurrencies in a bear market, that trading activity is drying up in two ways:
Customers’ accounts are less valuable than they were a year ago

and the lowered interest in crypto means people will trade less often.

Fewer trades and lower average transaction volume is bad news for Coinbase’s margins.
This dynamic was already playing out by the end of Q2 this year.

Net revenue is down about 60% year-over-year and net losses are growing.
So there are two dimensions that concern investors:

Coinbase the business.

And Coinbase the exchange.

The business has shrinking margins. And after what happened to FTX, which exchanges can we trust?
There are still a lot of questions to be answered.

Follow along and I’ll update you as I dig more into this.

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More from @GRDecter

Nov 23
The Grayscale Bitcoin Trust refuses to show proof of reserves due to “security risks”

Why is this a big deal? Here’s why:
As of close yesterday, $GBTC is trading at a 42.73% discount to Net Asset Value (NAV)

In other words, one share of GBTC with about $14.70 in Bitcoin trades for only $8.44.

So is this a huge arbitrage opportunity? Image
Well, maybe. Here’s why it might not be:

The market has several reasons to price GBTC below NAV, including:

Holding GBTC is more expensive than just holding Bitcoin. There’s a 2% management fee and higher trading commissions because it’s a trust, not an ETF.
Read 14 tweets
Nov 22
The FTX story keeps getting crazier.

Here are new details that have come out in the last 24 hours:
Sam Bankman-Fried’s parents own a $16.4 million vacation home in the Bahamas

And FTX purchased at least $121 million in luxury real estate for the use of executives and employees, including 7 condos in the Albany resort Image
By the way, SBF’s parents are both professors at Stanford.

They’re successful, but hard to imagine they didn’t get some help from their former billionaire son in affording a $16.4 million home.

But did FTX deposits pay for that home?
Read 8 tweets
Nov 21
FTX has just $900 million in assets to cover over $9 billion in liabilities.

But who gets paid back first, and who isn’t getting any funds back?

Time for a 🧵
There’s a very specific order that debtors get paid back.

This order is determined by the Capital Stack.

The capital stack basically tells us the priority each creditor has in the event of liquidation or reorganization.
Let me quickly clear up a misconception about bankruptcy:

The term ‘creditor’ does not just mean someone who gave the bankrupt company a loan.

A creditor is anyone that’s owed money or assets: It could be an employee who’s owed wages, vendors, or even the IRS.
Read 19 tweets
Nov 21
Tech Jobs are just daycare for adults.

Time for a 🧵👇

It’s the worst-kept secret that the Majors are 2-3x over-employed.

Elon is proving you don’t need thousands of employees who play some foosball, meditate, take a 3-hour lunch, send a couple emails then go home.

The party is over.
More and more layoffs are being announced across tech companies, with the most recent being Amazon.

Usually, Amazon is ramping up hiring into Black Friday/Cyber Monday and the Holidays, but now they are cutting jobs instead.
Read 18 tweets
Nov 18
Many are calling FTX a “Lehman Moment” for crypto.

But how similar is the collapse of FTX to Lehman?

Here’s a breakdown 🧵 Image
FTX and Lehman were founded 175 years apart.

Lehman started in 1844 as a general store that later turned into a commodity trading business.

FTX started in 2019.
Lehman Brothers was much larger than FTX.

Lehman: ~25,000 employees, $639 billion in assets, $613 billion in liabilities.

FTX: ~300 employees, $1 billion in assets, $9 billion in liabilities.
Read 18 tweets
Nov 18
2022 was the year of the crypto winter.

Then the world’s second-largest exchange collapsed. Now, the contagion is spreading. The structural weaknesses in the crypto system are threatening its very existence.

2023 might be the year of the crypto apocalypse.

Time for a 🧵
For anyone who needs a refresher, here’s what happened:

A bunch of twenty-somethings who were all sleeping with each other went to the Bahamas and set up crypto exchange FTX and trading house Alameda, which were valued at $32 billion.

Then everything fell apart.
It turns out that Alameda was overexposed to FTX’s own token, FTT.

Then the snowball effect took hold.

Binance CEO “CZ” sold his FTT, triggering a selloff. FTT prices fell, Alameda’s balance sheet tanked, investors lost trust in FTX, driving FTT ever further down.
Read 19 tweets

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