Most of that return they cited was Bitcoin going up, and Filecoin has actually severely underperformed Bitcoin in the time since - by 55%! Note: The yellow line is performance against Bitcoin, and green in USD terms. But investors who chose to buy Filecoin instead of Bitcoin at Coinbase’s listing on December 10th actually did poorly on relative terms, with a rapid decline (yellow line) in the first month. In my opinion, Ethereum makes sense as the majority of these “web3” tokens are built on Ethereum’s vision, rather than Bitcoin’s.įor example, the Coindesk article above cites a “six fold” return on Filecoin. The benchmark for any cryptocurrency should be Bitcoin (BTC) and/or Ethereum (ETH).
If you’re a hedge fund, you have to beat the benchmark.
Showing returns on an absolute basis is meaningless. Project developers and investors will hold a significant amount of the coins, but over time, the supply gets released. What do I mean by illiquidity? Basically, many have a large amount of the supply immobilized, or “locked” in Defi protocols, with incentives not to sell. If you believe, as I do, that the returns for most coins come from illiquidity rather than fundamental value, the sudden rush of buyers after a listing will create a pop but eventually turn negative as insiders’ lockups end. And like an IPO, that seems to come up with a “pop” - Messari, a crypto research firm, documented in a report that the average Coinbase listing leads to a 91% gain in 5 days, on average.īut I think there are two flaws with that analysis: I analyzed those coins - and found they did even better than the ones that made it, and the VC-backed ones didn’t show any of the same underperformance.įor years, being listed for trading on Coinbase has been the holy grail of crypto - the equivalent of an IPO on Wall Street. So I started to dig in, and what I found surprised me: most coins underperformed, returns got worse over time, and VC-backed coins did worst of all.īut I was able to do one better - for the last few years, Coinbase put out the names of coins they were thinking to list, but never did. That raises the ante even higher for them and their users. Third, Coinbase pivoted its strategy last year to go from being cautious to listing as many coins as they can. Second, a16z and Coinbase’s own returns are particularly interesting, given a16z is supposedly the best investor in this space, and there’s a potential for conflict of interest.
But unlike the NYSE or NASDAQ, Coinbase gets to choose whatever assets they want, using their own process. Why is this important and not just nerdonomics? First, Coinbase is like the New York Stock Exchange of crypto - a listing there is a huge deal, and usually leads to massive profits for everyone involved. Other exchanges like Kraken, FTX, and Gemini are also all active in venture, and have listed their own investments.
Those insiders include venture capital firms like a16z and, incredibly, Coinbase’s own venture arm, which has a number of investments listed on Coinbase. If coins, especially VC-backed coins, consistently underperformed Bitcoin/Ethereum after listing on Coinbase, that says to me that insiders were waiting for a big, dollar-based exchange to list so they could sell - VCs taking profits at the expense of retail. I started to wonder what these coins’ performance really looked like long term, especially stacked up against Bitcoin and Ethereum - benchmarks that are hard to view and calculate.
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