Coinbase's IPO will be the ‘biggest event of the year’ in public markets

Meltem Demirors, CoinShares chief strategy officer, joins Yahoo Finance to discuss the growth in crypto market investing as Bitcoin hits new all-tine high.

Video transcript

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MYLES UDLAND: All right, welcome back to Yahoo Finance Live on this Tuesday morning. Bitcoin prices hitting a record high overnight. This coming the day before Coinbase is set to come to the public markets in a direct listing. Joining us now to talk about all things crypto is Meltem Demirors. She is the chief strategy officer over at CoinShares. So Meltem, let's just start with the base of Bitcoin hitting another record high. At what point does another record stop being exciting for the folks in the crypto space? Or do we treat all our records like special children that we want to celebrate?

MELTEM DEMIRORS: I mean, can you ever really stop being delighted and just thrilled at crypto continuing to break new highs? No, I don't think so. And look, at CoinShares, we publicly listed ourselves in March of this year. We are now at an all-time record high of $5 billion in assets under management. In our exchange-traded products, there is over $60 billion in assets under management in ETPs around the world that provide exposure to crypto. And pretty soon, we're going to have a really big event in public markets.

So I think for us, you know, it's not just about the assets themselves reaching all-time highs. What's really cool here is cryptocurrencies are not only an asset class. And so we get to celebrate Bitcoin's new highs and Ethereum's new highs and all the other assets. But there is also a whole industry of companies that are publicly listed or in the process of publicly listing over the coming months and years. And that's also going to create, I think, a tremendously exciting opportunity for investors, but also going to give this ecosystem just so many different ways for people to participate in its growth.

BRIAN SOZZI: Meltem, far be it for me to be the dark cloud toting boomer here. But if there is something that could make Coinbase a disappointing public company within its first year, what would it be?

MELTEM DEMIRORS: Yeah, so I think the biggest risk here is Coinbase, 90% of Coinbase's revenue is still tied to retail trading volume. And it's very expensive, right? 250 basis points in transaction fees on average on those retail users-- that's expensive. And so I think there's going to be margin compression and challenges to Coinbase's business model, right? Their margin is someone else's opportunity. And already, we see other competitors in the space that are offering the same service, albeit with smaller brands, at much better prices.

I think the other key challenge is since so much of Coinbase's revenue is directly tied to retail trading activity, and that retail trading activity is directly tied to crypto asset prices, the correlation between Coinbase's public market valuation and their revenues and the overall crypto market cycle is something just to watch for. Historically, Bitcoin, in particular, has gone to these two to three-year cycles, where we see a period of tremendous expansion and growth, and then we see a 30% to 40% correction, sometimes even greater. So the risk here is that Coinbase could potentially have some of that same volatility that Bitcoin and other digital assets have historically had.

MYLES UDLAND: And you know, Meltem, I think on the eve of this Coinbase listing, which a lot of folks are seeing as, you know, kind of the end of this era of skepticism around crypto, speaking of boomers, Bank of America's latest fund managers survey out today, 74% of respondents still think Bitcoin is a bubble. At what point is it not really worth worrying about what traditional fund managers think about Bitcoin? And how do you, as someone in the space, think about where it fits into traditional allocation and not worry about these kind of classically viewed takes on crypto? Oh, it's only for criminals. Oh, it's a bubble, this, that, and the other. You've heard them all.

MELTEM DEMIRORS: I've heard them all. I spent the last seven years talking about all of those points. Look, at the end of the day, here's my main point. At this point, it is absolutely unconscionable that major commercial banks and asset managers are not moving more quickly, right? Morgan Stanley, JP Morgan, Goldman, they want to offer Bitcoin only to their wealthiest clients. And at CoinShares, we make Bitcoin accessible to everyone.

When Coinbase lists tomorrow, I firmly believe within the week, it will be worth more than Goldman Sachs. Goldman Sachs, $120 billion market cap. Coinbase right now is pricing in prediction markets at $150 billion. Crypto is disrupting every aspect of legacy finance. Coinbase is in the exchange space. At CoinShares, we're in the asset management space. Goldman today employs 40,000 people, was founded in 1869, $120 billion market cap. Coinbase, founded in 2013, employs less than 4,000 people, and is going to have a bigger market cap.

So, again, what I think we're watching here is a new guard coming in. And frankly, if financial institutions don't start to pay attention to this and take notice and build things that their clients want, their clients are going to leave. We've been the beneficiaries of that at CoinShares. Coinbase is a beneficiary of that. And there are dozens of other companies in the crypto ecosystem that are going to be beneficiaries. At the end of the day, right, investors and capital are going to move to areas of opportunity.

And I continue to believe that crypto, even at a $2 trillion market cap, as an overall asset class, is a massive opportunity, a once in a lifetime opportunity for investors. And so you either get on the train, or you get left behind. And I think we're close to that flipping point. And this week is going to be a major, major signal. Because Coinbase is poised to be the biggest event of the year in public markets.

BRIAN SOZZI: So, Meltem, let me just make sure I got it. You think within a week, Coinbase could be worth more than a Goldman Sachs. But do you think it would be-- do you think it would be warranted? I mean, Coinbase has no investment banking business, for example.

MELTEM DEMIRORS: I mean, look, is anything warranted? We have Nikola, a fake electric car company, right, with questionable finances, trading at a multibillion dollar valuation. Look, I'm not a judge, jury, or executioner here. I am just stating my belief that in the crypto space, there's a lot of opportunity.

The other thing I will say is, if we look at Coinbase's Q1 EBITDA, right, $1.7 billion in EBITDA, which brings them to about $7 billion in full year 2021 EBITDA if we extrapolate that out. At $100 billion, that's not even close to the 25x forward PE multiple that we're seeing on most tech companies, right, and most fintech companies. So in the realm of possibility, I think right now, Coinbase is potentially actually undervalued, based on the numbers they're putting on the scoreboard.

Now, again, those numbers are subject to some of the volatility of the crypto asset class. But over time, you know, I do think it's warranted. I think investors are looking to allocate to high growth areas and to fintech more broadly. And there are tons of companies out there trading at 25, 50, 100, even 1,000x forward their PE multiple. So I don't think Coinbase at $200 billion is unwarranted or out of the question at all.

MYLES UDLAND: Yeah, I think I saw, Meltem, someone do the quick math. Coinbase has 10% or 11% volume within the total crypto trading space. So if it gets 10% or 11% of the entire crypto market cap, boom, there you go, $200 billion on a $2 trillion total space. We'll see how that math checks out, but I look forward to seeing something like that in sell side notes coming up in the coming weeks. All right, Meltem Demirors, chief strategy officer at CoinShares. Meltem, always fun. Thanks for hopping on. We'll talk soon.