A common variant of the question: “Why would I buy $COIN over BTC/ETH?” always comes up whenever I talk to others about Coinbase.
I have countless writings covering the details of Coinbase, but I want take a more reductionist approach in describing their business.
With that in mind, there are two facets to Coinbase that differentiates them from holding BTC and ETH:
$COIN captures value across the entire crypto ecosystem (including ETH/BTC), and
$COIN’s proportion of value captured (relative to the other parties) is hockey stick shaped – it mimics the payoff of an out the money call option
Captures value across the crypto ecosystem
Any activity within crypto generates value, and that value is captured accordingly by the different players involved. If you stake your ETH with Lido, who exactly captures the value?
ETH L1 (fee burn, stakers)
Depositor (staking yield)
Lido (they skim some fees + increased TVL metric)
But indirectly, by staking your ETH, you have now increased the expected value that the entire ecosystem will accrue in the future. How exactly?
It is likely that you’ll eventually unstake your ETH (more network fees)
You will more likely participate in other onchain activities (relative to someone who has did not stake their ETH)
You are more likely to offramp your gains in the future
Notice I use the term “likely” a lot here. The goal here is to emphasize the actions of the average user considering these actions are related to the future.
Coinbase covers most of the functions within the crypto ecosystem and some percentage of participants will use Coinbase for each of those functions. Even if they don’t, their participation in crypto will indirectly accrue value to Coinbase:
More overall activity legitimizes this space (which has a positive expected value to Coinbase) or,
It increases the likelihood that the specific participant will use Coinbase for some function in the future
This statement actually applies to many big centralized crypto companies (Kraken, Binance), but I would argue that Coinbase is along the efficient frontier (the optimal point) of legitimacy and popularity. It is also the only publicly traded crypto exchange.
Value capture profile similar to that of an OTM call option
We are all here because we expect this cycle to play out like the last – culminating in irrational exuberance and 150K BTC.
The average crypto participant in Oct ‘23 is much more crypto native - on average - vs participants in Oct ‘21. We self-custody, run our own validators, use Uniswap and Aave. But in order for the next bull run to come, we need these less crypto native participants.
We need them (both retail and institutions) to be present for the highly anticipated bull market. Their activity is necessary for prices to climb.
And in 2025, when you tell your coworker Joe to stake his ETH, do you think he’s going to set up Metamask, onramp ETH to his wallet, and set up his own validator? Absolutely not, considering the option of clicking 3 buttons on Coinbase to stake your ETH exists. And there’s gonna be a ton more Joe’s than there are gonna be than imcryptonative.eth’s that enter this space between now and the cycle top.
To extrapolate, this means the proportion of value captured by $COIN is just going to increase from here on out. As the normies come, they aren’t going to do everything onchain. They’ll custody/stake/swap/etc through the Coinbase interface.
In the tech / venture capital space, the value that the average user generates is called their lifetime value (LTV). As the cycle goes on, the LTV of the average Coinbase user (when your normalize for portfolio value) will be higher and higher.
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To conclude: $COIN is an OTM index call option on the crypto ecosystem (which includes exposure to BTC + ETH). And Brian is bald.