Messari Daily Brief Jan. 12, 2021 - Picks N Shovels

What are crypto companies actually worth?

In an industry tied to “currencies” - which are definitionally hard to value using fundamentals like discounted cash flows or book value - exchanges stand out as the one sector to which we can apply old school valuation methodologies, and excite picks and shovels investors.

This isn’t a mere curiosity. As a sector, exchange market caps will rival Ethereum’s this year. Coinbase could fetch a $30 billion valuation in the public markets. Binance is likely north of that, and exposure to the business is already available indirectly via its BNB token. Houbi, OKEx, Bitfinex, and FTX tokens are all similarly available for bids. The numbers are big enough that other exchange execs have begun to chime in about their potential valuations (don’t worry SBF, we’ll have a model out for FTX soon).

We’ve already released full valuation models (h/t Mira) for Coinbase and Binance. But if you’re looking for a good back-of-the-napkin on crypto infrastructure valuations, you really only need three inputs: trading volumes, average fee, and a “trust score.”

For Binance, it’s all about trading volumes. They dominate with a 60% share of the spot market (1), but their fees are tight by design to entice traders (2), and they’re safe technically, but not bullet proof from a regulatory standpoint (3). With Coinbase, they've fallen to 10-15% market share of spot (1), but their fees are high by design since they bundle retail trading and custody in a “one-click buy” interface (2), and are the most trusted western crypto platform (3). You can save time (and money), by doing your own 1-2-3 scoring, and trading the relative performance of exchanges according to your own mental model.

Exchange token (and proposed share?) prices all seem reasonable to me. And the exchange space might be the closest thing crypto has to an efficient market.

Headlines that matter:

• INTEL (enterprise): COMP, Bancor liquidity mining updates; Graph, Polkadot upgrades; Stacks 1.0
• Coinbase implied IPO valuation spikes to $75 billion (Blockworks)
• Lyn Alden’s must read monthly macro newsletter for January (Lyn Alden)
• NYDIG Acquires Digital Assets Data in talent acquihire (CoinDesk)
• 10 countries to move to (that don’t tax crypto gains) (Decrypt)
• Tether minted $2 billion last week; cue concern trolling (CoinDesk)
• It’s official, Bakkt going public via SPAC at $2 billion valuation. (The Block)
• DEX metrics and 2021 themes (The Block)
• Lender BlockFi will raise Series D round prior to late 2021 SPAC (Blockworks)
• Daily Shade: transitioning through "a temporary bug” in the internet’s history.