Black Swan Author Nassim Taleb Calls Coinbase Crypto Exchange ‘Worthless’ – Here’s Why
Nassim Taleb, author of the best-selling book The Black Swan, believes Coinbase, the biggest cryptocurrency exchange in the US, is “worthless.”
In a recent tweet, Taleb said that Coinbase has negative cash flow, meaning it has more outgoing than incoming money, a “grisly” future even if the cryptocurrency industry somehow manages to recover, and its owners have been getting out.
Disclaimer: Headlines are misquoting me on $COIN Coinbase. I said nothing abt their holdings & risks of blowup, no analogy to FTC. My point is that they are cash-flow negative, w/a grisly future (even if crypto come back) & OWNERS have been getting out. The company is worthless.— Nassim Nicholas Taleb (@nntaleb) November 27, 2022
Taleb noted that he does not believe Coinbase will face the same issues that FTX, once the world’s third-largest cryptocurrency exchange, faced and eventually failed. “I said nothing abt their holdings & risks of blowup, no analogy to [FTX],” he said.
As reported, speculation around the health of FTX and Alameda arose in early November as reports revealed that the investment firm’s balance sheet was loaded with FTT tokens, the native token of FTX. On November 11, FTX announced that it had filed for Chapter 11 bankruptcy in Delaware, putting an end to the desperate attempt to raise funds.
The collapse of FTX has also sent crypto prices into a free fall. Bitcoin has been trading around the $16,000 mark for the last couple of weeks, its lowest level in two years. The broader crypto market is also down by around 20% over the past month.
Is Coinbase in Trouble?
Last week, famed short seller Jim Chanos, who made a killing with his early bet against Enron, criticized Coinbase’s business model, saying that costs are far too high for the current environment.
In fact, Coinbase charges one of the highest fees in the industry. The exchange charges a spread of about 0.5% for cryptocurrency sales and purchases. This is, of course, on top of transfer fees that could go as high as 5%.
Chanos believes a company like Fidelity or Vanguard could offer basic crypto trading with fees that dramatically undercut Coinbase. In order to stay relevant, Coinbase might have to reduce fees, which will then make the bottom line.
In the third quarter of the year, Coinbase registered a net loss of $545 million on revenue of $576 million. This has also negatively impacted shares of the company, which are already down more than 80% this year.
Notably, Coinbase’s institutional business has not been much profitable too. Around $133 billion of trades were conducted by institutions in the third quarter, but that translated into just $19.8 million of revenue for Coinbase.