This morning, Coinbase, Inc. ($COIN) started trading after a direct listing on the Nasdaq stock exchange, with a current share price of 554,212 sats ($349). With 261.3 Million shares outstanding, the company has a market capitalization of 1,475,878 BTC ($91.19 billion) at the time of writing. While Coinbase has played a large role in the history of Bitcoin, especially in the United States over the last decade, the company is unattractive from an investment standpoint in bitcoin terms, and anyone using the world’s soundest money as their unit of account for economic calculation should agree.
The Real Unit of Account
While valuing equities with bitcoin as a primary unit of account can be inconvenient over a short amount of time due to volatility in the dollar exchange rate, it is absolutely crucial to understand valuations in bitcoin terms if you wish to retain (and grow) your purchasing power into the future.
You cannot escape the opportunity cost of bitcoin, and the opportunity cost of not accumulating the world's strongest and most sound monetary asset, is quite large. Regardless of how bullish you may be on Coinbase and the company’s moat in the *cryptocurrency* industry, bitcoin obsoletes all other money. To think that any company should be worth 7 to 8 percent of global wealth is ludicrous, nevermind one that holds less than 0.2 percent of the global money supply, with about 4,487 BTC.
If these measurements seem outrageous or incomparable, you might be missing what is truly taking place. Bitcoin is still a nascent, yet extremely robust and hardened technology and monetary asset. A reaction to growing global demand for an alternative monetary system, the emergence of Bitcoin in contrast to the increasingly fragile and unstable incumbent fiat monetary order, Bitcoin stands to appreciate in orders of magnitude over the next couple of decades, as it continues on its path toward becoming fully global money.
Prudent Capital Allocation
It is clear from a risk management perspective that executives at Coinbase should use their newfound access to public markets to dilute the current shareholders equity to buy bitcoin for the company’s balance sheet. Afterall, Coinbase should understand the ills of fiat and the merit of bitcoin the asset better than nearly anyone.
Conducting this economic calculation using the soundest money is even more imperative at the tail end of the long-term debt cycle, as shareholders should be looking for ways to turn the company’s record revenue and profits into sound money to protect the balance sheet from being debased. Similar to a calculation made by companies to issue debt to buy back their stock, in a sound money economic system that still has equity markets denominated in a weaker currency, a prudent strategy would be to dilute shareholder equity on a shares-outstanding basis to acquire bitcoin.
The contrast between valuing equities with expected future-discounted cash flows when sovereign debt offers negative real rates, against valuing equities as part of a fixed, 21,000,000-piece economic pie is severe. Those who adopt a bitcoin standard will have their purchasing power increase at the expense of those who don't. This is not opinion, but rather an empirical economic reality.
Going forward, bitcoin accumulation very well may be the new share buyback, in an increasingly popular move that not only boosts share price, but does not completely decapitalize the business and promise away future free cash flows at the expense of boosting earnings in the present. Coinbase has certainly had a meaningful impact in the adoption curve of Bitcoin, but for the company to remain viable over the long term, accumulating bitcoin is absolutely imperative.