On 14 April 2021 US Based Cryptocurrency exchange Coinbase (COIN) listed on NASDAQ at a valuation of AUD 110bn. As reference points, on the same day, Australia’s most valuable company, the Commonwealth Bank, was worth AUD 155bn and the ASX Ltd (Australia’s largest equity exchange) was worth AUD 13.9bn.
The Coinbase listing is the first crypto native business of this scale to list on traditional financial markets infrastructure and is an important step along the path to integration of crypto and traditional markets. In my view, this type of integration is going to become a trend for the next 2-3 years. It will be both ways, but the challenge is mainly to the existing financial service providers. Those who are able to adapt will thrive in this new environment by bringing their considerable client base, brand and resources to crypto, those who do not will have their ‘kodak moment’ and struggle to stay relevant.
By way of example, on 13 April, we had HSBC announcing that they had Banned clients from buying Microstrategy due to it’s concerns over it’s Bitcoin Treasury Strategy. This is staggering. HSBC grew up in Hong Kong during the period of opium wars and thrived along with Hong Kong as laissez-faire economics drove growth for hundreds of years. This once fearlessly independent and freedom loving institution has become shamed by money laundering offences and more lately by it’s censorship of clients and client activity (refer here to blocking of democracy protesters accounts). Bank’s like HSBC who are unwilling to put the work in to develop a Bitcoin/Crypto service offering are going to cease to exist in their current form. This may take 10 years or 20, I am not sure on the timing, but I am sure that no business can stand still in the face of such innovation and survive.
In Australia, Westpac’s venture capital business profited handsomely on it’s COIN investment. But I question whether they or other Australian Banks have the agility to develop Bitcoin/Crypto services for their clients. Consider a financial services giant like AMP which is struggling to find it’s place in the world and decent profitability despite it’s 172 year history and assets under management of over AUD 190bn. The Directors and Executives of companies like AMP do not have the bandwidth to consider crypto properly. One such Director advised me not so long ago that their CEO ‘…simply does not have any discretionary reading time, he is 100% occupied with restructuring the business and dealing with regulatory issues…’…and that the Board similarly has no capacity to consider anything other than what they have asked the CEO to focus on…restructuring and regulation. At the same time there is a growing list of Australian based crypto start-ups (Synthetix, Rocketpool and a number of crypto exchanges) that are already valued in the billions of dollars.
In this excellent podcast Laura Shin interviews sell side analyst Gil Luria, director of research at D.A. Davidson. No longer can traditional equity analysts ignore bitcoin, they now need to assess how a bitcoin based business will perform, how holding bitcoin on the balance sheet of a non-crypto business will impact the stock and how bitcoin and crypto more widely could impact traditional businesses.
In the end we will see new giants emerge (Coinbase, Digital Currency Group, Gemini, NYDIG), some incumbents will falter and others (Fidelity, NYSE (Bakkt), Nomura) will adapt and thrive. What a time to be alive and have a front row seat.