Original Compilation: Old Yuppie

Original Compilation: Old Yuppie

decentralized"decentralized", but former Twitter CEO Jack Dorsey has been calling for venture capital firms to profit from altcoins. Which got me thinking, Marc Andreessen actually has a seat on the board of Coinbase at the same time that Coinbase announced his investment tokens to the public. Isn't this a conflict of interest?

I wonder how these coins will perform in the long term, especially when stacked with Bitcoin and Ethereum, it is difficult to calculate the relevant return indicators.

If tokens, especially VC-backed tokens, consistently underperform Bitcoin/Ethereum after listing on Coinbase, it means to me that insiders are waiting for a large USD-based crypto trade Listing opportunities so they can be sold – VCs profit at the expense of retail investors.

These insiders include VC firms like a16z and, incredibly, Coinbase's own VC arm, which publishes many of its portfolios on Coinbase. Other exchanges such as Kraken, FTX, and Gemini are also active in venture capital and list their own portfolios.

Why does this matter, and not just step-by-step nerdy investing? First, Coinbase is like the New York Stock Exchange of cryptocurrencies — listing there generates huge trading volume, often resulting in huge profits for everyone involved. But unlike the NYSE or Nasdaq, Coinbase can use its own process to choose any crypto asset they want to list.

Second, a16z's and Coinbase's own returns are particularly interesting since a16z is said to be the best investor in the space and there is a potential conflict of interest. Is this financial game rigged?

Third, Coinbase shifted tactics last year, from cautious to aggressive. This ups the ante even more for them and their users.

So I started digging, and what I found surprised me: Most cryptocurrencies underperformed, with worse returns over time, and VC-backed currencies performed the worst.

Over the past few years, Coinbase has published the names of the coins they considered listing, but did not list. I analyzed these coins - and found that they performed even better than those that managed to get listed on Coinbase.

first level title

The Coinbase Effect or the Coinbase Curse?

Listing on Coinbase for years has been the holy grail of cryptocurrencies — the Wall Street equivalent of an IPO. Messari, a cryptocurrency research firm, recorded in a report that the average listing on Coinbase gained 91% in five days.

But I think this analysis has two flaws.

• This is an extremely short time frame. If you think like me that most currencies return from illiquidity, not fundamental value, then a sudden influx of buyers after listing will create a pop, but gains will eventually come as the insider lock-up ends becomes negative.
  What do I mean by illiquidity? Basically, many people have a lot of supply locked up, or"locking"In the DeFi protocol. Project developers and investors will hold a large amount of tokens, but over time the supply will be released.

• It doesn't make sense to show returns on an absolute basis. If you're a hedge fund, you have to beat the benchmarks. The benchmark for any cryptocurrency should be Bitcoin (BTC) and/or Ethereum (ETH). In my opinion, Ethereum makes sense because these"web3 "Tokens are mostly built on the vision of Ethereum, not Bitcoin.

• For example, the Coindesk article above cites Filecoin's"six times"image description

Note: The yellow line is the performance relative to Bitcoin, and the green line is in USD.

Most of the returns they cite are Bitcoin’s uptick, and in the time since, Filecoin has actually severely underperformed Bitcoin – 55%!

At this point, most people with experience in cryptocurrency trading are looking at the price of BTC or ETH, not the price of USD, to make an assessment.

How is the listing on Coinbase? I took the 128 listings (excluding stablecoins and algorithmic stablecoins) from Coinbase and separated the listings by year.

Note: I used the official Coinbase Pro dates published by Coinbase in most cases. Trading for most tokens usually starts within 2 days, often on the same day.

Community"Community") participate in the growth of these networks.

But the reality shows that most of the returns come very early after listing - 2021 coins do well, but 2020 and earlier all coins do poorly! This shows what? The 2021 returns are also lower than the 91% prevalence rate cited by Messari, suggesting they both lose value after the prevalence rate.

Once a coin has been on Coinbase for a year, it seems to lag behind Bitcoin and Ethereum fairly solidly.

I also looked for a few coins where I could find returns for the year before listing (68 of 128), just to show that these coins haven't done badly since inception.

If we break down the coins that were listed last year, we still see the same pattern: last six month coins (65 coins) are doing better than previous six month coins, and last six month coins are also lagging behind On average 91% of the currencies.

If you take only 2 coins (Polygon and Solana) out of the 63 coins that are older than 6 months, Coinbase returns also become negative (-10.5% for Bitcoin and -55.0% for Ethereum) .

Looking at the hit ratio, 91% of all listed coins lagged Ethereum in gains and 70% lagged Bitcoin when they listed more than a year ago. These currencies are also getting worse as they go forward.

Surely we'd get better results if we filtered a16z's list on Coinbase? Quite the opposite...

A16z’s returns overall are much worse than Coinbase’s listing. It smells like a rat barn to me. Given A16z’s access, these should be the best coins, but instead, 100% of coins over 12 months and 90% of coins over 6 months are behind Ethereum.

1) Retail investors are not able to create a full portfolio like venture capital firms

2) This is a public offering, so the returns should be more like stocks, with a positive average rate of return

3) VC's"hit rate"should be"100 times"to make up for dozens of failures, but only one (Solana) of a16z’s listed projects managed to at least double in BTC terms.

Back in 2018, when I used to trade tokens, looking at the cap charts for big name investors like Andreessen Horowitz was to avoid getting caught in"Carpet"Best way to invest: When a coin suddenly turns out to be a scam, I'd say it's useful.

However, when I tried to deploy a similar strategy on Coinbase in 2021, I continued to lose money. I think now I vaguely know why.

I also took a look at the investment from Coinbase Ventures. They seem to be doing better - although older coins are also underperforming. Coinbase's portfolio is relatively young, and its outperformance is entirely driven by two coins. Polygon and Wrapped Luna. Without these two, Coinbase Ventures' portfolio of 15 other coins returned an average of -6.0% BTC and -42.6% ETH.

My favorite angle is when Coinbase and a16z invest together. This seems to be the darling of the industry (DeFi darling? (The five are Uniswap, Celo, Keep Network, Rally, and Compound, if you're curious).

As a VC investor in the US, there are also good reasons to sell on Coinbase. (1) You don't want to be double taxed, trading to non-USD currency pairs will cause double taxation (2) You are a US entity and cannot first open an account on Binance or other exchanges that list these coins (3) Host on Coinbase And transactions are more secure, because on other exchanges you may have to use hardware wallets and so on.

I also looked at why a Coinbase investment might do well. One thing I've noticed is that Coinbase seems to be announcing their investments with a smaller market cap (see below).

For 7 of the 18 Coinbase-backed coins, I checked to see if Coinbase or Binance (an exchange that is more regulatory-aggressive) listed first, and in 5 of the 7 cases it was Coinbase that moved first - the ratio much higher than normal. One wonders, did Coinbase know that a Binance listing would hurt their bottom line by sucking out returns?

first level title

evidence

Their spokesperson will say that the numbers alone do not prove anything about Coinbase or a16z. Newer cryptocurrencies perform better because of better technology! Now, before we sue you, shut up.

But we're lucky, we have what in economics says"natural experiment". Until 2020, Coinbase will announce that they are considering listing a group of tokens. Some got the green light (included in my analysis above), some didn't.

What are the returns on those unlisted tokens? Many of them are breaking out. On a USD and BTC basis, unlisted coins significantly outperformed listed coins, while slightly underperforming ETH (in keeping with my stance that ETH is the best benchmark).

Importantly, returns also get worse as coins age—even worse than Coinbase’s coins. There are several reasons for this, I believe. (1) Coinbase's selection criteria may have excluded the worst rotten coins (2) Unlisted coins are older, meaning more time to degrade.

If we just look at 2020, we have a fairly even comparison (17 Coinbase listings vs 13 non-listings), and the difference in returns is astronomical. -- 4 non-listed tokens outperformed ETH, while only 1 out of 17 actually listed companies outperformed ETH.

This negative effect is so strong that in 2019 and 2020, if you pick coins that are not listed on Coinbase, the odds of your returns beating BTC or ETH are significantly higher - for 2020, the odds are as high as ETH Five times (Coinbase 2020 94% of coins underperformed vs. 69% rejected by Coinbase). This strongly suggests that USD liquidity appears to outpace Coinbase’s"halo effect"...or that people are selling.

This is good support for both of my arguments. (1) Appreciation of most coins is due to illiquidity, not value (since both listed and unlisted degrade over time) (2) Liquidity on Coinbase causes these coins to underperform, perhaps in part Sold by insiders.

first level title

locking

We have taken a look at the a16z coins and found that they are underperforming BTC, ETH and the average listing volume on Coinbase.

What about unlisted tokens? The sample of four coins is much smaller, but the results are quite stark.

The rate of return of the currency invested by a16z that is not listed can actually exceed Bitcoin, which is unmatched by the listed currency. Arweave has investments from a16z and Coinbase Ventures, but has never gone public -- by far its strongest performance since Coinbase says it is"Evaluate"Since its listing, it has doubled by 10 times!

We can basically use 2020"DeFi Summer "3 currencies to tell our story.

These tokens have all experienced the same"the macro"environment. Unlisted tokens are the best; listed non-VC tokens are better; listed and VC-backed tokens are the worst.

What does all this mean?

My first thought when I saw this was that I wouldn't buy anything listed on Coinbase myself, especially after the initial hype, and stop trusting VC-backed tokens. As it turns out, I didn't lose all my trading skills.

The logical corollary would be to just buy BTC and ETH, although those returns have also declined year-on-year (including last year), although still much less risky than these smaller coins. Overall, they seem to be more"web3 "Tokens have a greater chance. (Please re-read the disclaimer at the top).

I think it also has important implications for some of the big debates in cryptocurrency.

• right"Balaji "rebuttal of the theory. Balaji likes to repeat,"web3 "A key value proposition of the"little people"support

• support"Jack"argument. Jack's argument is that most of the tokens are owned by venture capital firms, who utilize"web3 "Claims to drain the liquidity created by deflationary asset demand have ruined Bitcoin. Jack is a bitcoin tycoon, that's his own opinion, but so far, he looks like he might have a point.

Other thoughts: Coinbase may have lost its brand here too. They may need new assets to encourage deals, but others think the pullback from a cautious approach could be Balaji's influence -- given his comments on"help"The investor's argument makes sense, but judging from the data he may be wrong. Also, Balaji used to work at a16z and Coinbase - so no one can really say what his motivations are.

And finally -- do I think there's anything improper going on with these two companies? Actually I don't think so - it's possible they haven't even looked at the numbers themselves. They may just be transparent because data on other investors and exchanges is hard to come by. But they are also, by far, the most influential.

Instead, I think it's a microcosm of how bad crypto's incentives are - VCs and private investors who used to have to wait a decade for liquidity can now get it within a year. The last time this happened was 1999, and we know how that ended. It's a recipe for risk, and then the risk is quickly passed on to the public.

Objections readers may have to my analysis:

You do not hold cryptocurrencies. No, I'm long BTC, ETH, and NEAR, using the March 22 $26 BITO put to hedge against some recent volatility.

• You are a big Bitcoin user. No, I worked for Joe Lubin and ConsenSys for three years.

• You are not looking at other exchanges. Given Coinbase's listing on exchanges so far"Explosive style"At most, I think the liquidity dilution is also strongest there. I also think the relationship between a16z and Coinbase is the best subject to study because a16z and Coinbase are closely linked and have the greatest impact. I also suspect that a16z has accounts with Kraken or Gemini, given their vested interest in Coinbase, I'm interested in doing an analysis with Binance, so that might be a future analysis.

• Those aren't bad returns. The returns of the coins listed last year (basically 2021) are still good, and the returns of the US dollar are all positive. That's fine, but I would say, if these coins go up just because of bitcoin, what happens when bitcoin goes down? And if you're just losing to Bitcoin, what's the point of Coinbase?

• first level title

My proposed solution (hi Gary Gensler)

The first question I want to ask is is this legal? Both NASDAQ and NYSE have venture funds, but the SEC has to approve their investments before going public! No regulator checks every Coinbase listing. Sure, maybe they have processes, but would you trust any old company's financial statements if no one audited them?

Think of it this way: It's like Google investing in Goldman Sachs, then Goldman Sachs publishes a research report on Google's work, and then Google IPOs its own investment. And no one is required to disclose what their trades are about. Surrounded by such poor incentives, are you getting any valuable information?

Here are some solutions that I believe are necessary to better protect investors and correct some of these poor incentives.

1. Fund information disclosure. Hedge funds and mutual funds are regulated by 13F and 13D: with 13F, they must disclose their holdings quarterly, and with 13D, whenever they acquire more than 5% of a public company.

My point is that VCs and other cryptocurrency investors should do the same with cryptocurrencies. Looking to sell to the public? Play by the rules of the public market. Otherwise, it would be unfair to those patrons who are clicking on Coinbase's 1 billion YouTube ads.

Some people will say that 13F and 13D are useless, and may not be helpful to small investors who cannot read documents. But I say it will allow professional investors to evaluate the tokens of investors who have taken on quick liquidations, which will make reputation gain/lose.

2. Fix investor rules -- but not just through deregulation. A populist would say:"Remove the allowed investors rule!". This hinders people's participation in economic growth!"I said sure. But you know public companies (you know,"no license"investment) are also subject to regulatory and disclosure rules?

These advocates want deregulation of venture capital (necessary) without the rules of public markets (also necessary). This means a public filing of the S-1 form. The S-1 typically discloses the relationship between investors and directors, risks, and importantly, ownership of management and key investors.

I'm sure the Balaji and Ryan Selkis of the world would say this idea would"to kill"innovation. Contrary to popular belief, I do not believe that companies have been kept private for longer because of onerous rules (though they are onerous) and public markets have become more forgiving of losses.

This means you can go public with increasing loss sizes. As a founder or investor, if you can avoid dilution and get a bigger (cash-out) return, why wouldn't you?

3. Close the loopholes of utility and governance tokens. The SEC accidentally created a huge loophole when it said that Ethereum is not a security because Ethereum’s token has utility.

Most DeFi uses"governance token"mode, one token is one vote.

Let's use Celo as an example: in"Between 2018 and 2020, Celo raised over $46.5 million through the sale of approximately 120 million CELO tokens". It has since stated that the total supply of tokens will never exceed 1 billion, of which only 6% (60M) are in circulation at launch.

Since then, it was listed on Coinbase on September 3rd (Coinbase and a16z invested) with approximately 12% of the coins in circulation, which has increased to 37% today in the 15 months since!

The value of this coin lies in its ability to"Voting to determine the generation of stablecoins", so of course we need 1 billion of these coins.

If utility/governance coins remain an open loophole, issuing companies need to make a fair estimate in their disclosures of how many tokens users will actually need - so investors can hold them accountable.

Look at the lackluster performance since April 2021, when the release schedule accelerated significantly (to 1.2% per month).

4. Stricter (non-)listing rules. Coinbase currently has no rules regarding minimum market capitalization, minimum number of shareholders, or minimum daily trading volume. This means that aircoins can go down, down, and down.

in conclusion

in conclusion

In Urdu, we call our lackeys chamcha, "spoon" - because they serve your needs. At the end of the day, I'm someone on Substack - but sadly I think the state of crypto investing today is that all the "research" you get comes from someone's chamcha.

I don't know if Balaji or Jack will be proven right ten years from now, but all of them support what I'm saying"Charlie Lee" (creator of Litecoin): There may be huge demand for a deflationary asset like Bitcoin, but the big problem is that anyone can create another similar cryptocurrency, so it's not real at all deflation.

What will Coinbase's 2021 coin earnings look like next year? I'm willing to bet that the same pattern will continue, i.e. the price of the coin will explode and then fall below the return of Bitcoin. At the very least, I hope Coinbase users will eventually see this -- just like you can see ETFs or mutual funds.

At best, investors and exchanges are the ones who want to reinvent finance but underestimate the complexity. As Matt Levine said, a lot of cryptocurrencies are just repeating the mistakes of financial history.

Remark:

Remark:

• In eight cases, the unlisted tokens were not traded at all prior to Coinbase’s assessment. In this case, I used the earliest market data available on Coingecko. Interestingly, out of the 8 coins that are not yet traded anywhere and evaluated as listed, 5 have investments from a16z or Coinbase! I used a16z and Coinbase.

• I used a16z and Coinbase Ventures' own investment listings, but in one case (Livepeer) I found an outside source stating that Coinbase had an investment, but it wasn't recorded on their website (it's possible they later rescinded the post).

• For a market cap comparison of Coinbase support vs. not support, I could not find listed market cap amounts for the companies listed below. Braintrust, Clover Finance, Jasmy, Kyber Network, Loom Network, Moss Carbon Credit, Voyager Token, Wrapped LUNA, Orchid-protocol.