Source: A screenshot, Instagram, Coinbase
The narrative that the listing of the shares of major crypto exchange Coinbase is helping the price of bitcoin (BTC) higher – is false, according to a prominent Bitcoiner, Vijay Boyapati, the author of ‘The Bullish Case for Bitcoin’ and Senior Software Engineer at Peach.
Many people are speculating that interest in Coinbase would trigger "a fresh wave up in Bitcoin’s bull market," argued Boyapati in his Twitter thread. Additionally, as Coinbase reported estimated Q1 revenues of USD 1.8bn with some USD 800m in profit, it is likely that the company will be valued around USD 100bn once they become public, he said.
However, the question is if "this huge liquidity event" will transfer over to bitcoin? The answer, per Boyapati, is that it may not be the case:
"If investment dollars that flow to Coinbase provide a "crypto" allocation that will satisfy many retail and institutional investors, in a way this steals potential investment demand away from bitcoin."
The reason behind this, as Boyapati explains, is that many "unsophisticated" retail and institutional investors may buy into Coinbase’s direct listing as a way to get exposure to the "crypto" space, but "the capital allocated with this mindset will NOT be used to purchase BTC."
According to him, there is a correlation between the BTC price and Coinbase’s valuation but the two assets are vastly different: the former being a form of money and valued based on the attributes that make for a good store of value, and the latter being a stock, valued based on cash flow.
Still, there might be another way for BTC to benefit from the direct listing, but would this one work?
As reported, Coinbase is preparing for a direct listing of its shares on April 14. Unlike the traditional initial public offering (IPO), in a direct listing, the company sells shares directly to the public without getting help from intermediaries.
As it’s not an IPO, employees and insiders can sell their shares right away.
"A 100 billion dollar liquidity even[t] puts a LOT of cash in the hands of Coinbase employees and executives," Boyapati said. "[CEO] Brian Armstrong will become a very rich man."
This still doesn’t mean that the employees will decide to invest that money into BTC. This is particularly notable as the company itself "hasn’t shown a particularly strong desire to acquire bitcoins in its treasury," wrote Boyapati, adding that "culture starts from the top and Brian has never been the most enthusiastic fan of Bitcoin."
Additionally, contrary to those seeking to get a taste of the crypto space, Coinbase’s employees may decide it better to diversify away from the industry in which they work than move deeper into it by buying BTC.
Unfortunately Armstrong has had a long history of not really understanding what #Bitcoin is and trying to make it something that would have been far less valuable (a payment system). pic.twitter.com/NlEu5HwGwJ
— Vijay Boyapati (@real_vijay) April 7, 2021
However, Boyapati concluded that "it’s important to understand that when the next leg up for bitcoin begins, it is simply because bitcoin is in a massive secular bull market. It is a false narrative to believe Coinbase is driving bitcoin higher."
just setting up my twttr
— jack (@jack)
Boyapati previously argued that the company would’ve been a lot bigger if they have held their profits in BTC instead of USD.
At 13:34 UTC, BTC trades at USD 57,391 and is up by 1.4% in a day, trimming its weekly losses to less than 3%. The price is up by 10% in a month and 698% in a year.
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