Wall street, pay attention (and Canary Wharf as well)!!! Newspaper magnates and media
moguls, when queried about the prospects of the Internet, proffered disbelief in the early ‘90s. When was the last time you read
the classifieds, rented a Blockbuster movie or called into a radio station? As
the Internet clearly showed us in the ‘90s, when change comes… It comes fast
and takes no prisoners!
“47% of all jobs will be automated by 2034, and no government is prepared.” - Economist [11]
“In the next 10-20 years, 58% of financial
advisors will be replaced by robots and AI.”- Frey and Osborne, Oxford University [12]
I've had difficulty sourcing the expertise that I neede from the bitcoin community, so I sourced it from the general and fintech community, getting them up to speed on Bitcoin. After totally replacing my devlopment team with (4) seasoned veterans from the fintech (hedge funds, trading platforms) and distributed app (Yahoo, Google, Amazon) space, I've come to an interesting conclusion. The vast majority of hardcore technical talent still has absolutely no idea what this protocol is capable of. When I walked my team through what I was doing, they were literally - and absolutely... Amazed.
This tells me that as the true higher end intellectual talent comes onboard, things will start to become very, very interesting. As it is, shortly after launch, I expect Fortune 5000 companies and data providers such as Bloomberg and Reuters to provide interest. This is for a product category and underlying technology implemention that didn't even exist this time last year.
What does this portend? Well let's look at it via its most simplest attributes.
The Redefining of Business
A promise is a commitment, made now, to perform an action in
the future. All business transactions are essentially a string of promises. The
basic business transaction consists of two promises - the promise to deliver a
product/service and the promise to pay for said delivery. Business can get much
more complex by involving intricate, interwoven models of transactions, which
are essentially just layered… promises.
Significant resources are spent ensuring people and business
entities keep their promises to pay, to perform, to honor their words and
contractual agreements. Due diligence, research, lawyers, litigation, mediation,
arbitrators, escrow agents are all methods of doing such, but historically a
promise has always been just a commitment to perform a future act, and nothing
more.
Veritaseum has discovered a way to codify promises in the actual money
used in a business transaction. We make and sell… “Unbreakable Promises”!
What is the typical Wall Street transaction? A string of promises. I agree to pay you $X for Y asset at this date. Whether it's Goldman Sachs selling interest rate swaps to Greece, or Morgan Stanley selling real estate units to HNW expats - it all amounst to the same thing. Unfortunately, so do the meltdowns from the last decade. What if every promise given a government by Goldman Sachs, or a private investor by Morgan Stanley, or... What if everything said was forced to be true?
This is the new world, and it is automated... performed through software, not through $17 million per year traders [13]. I'll opine on the transformation of Wall Street in a later post (or those who are massively curious and can't wait, download this research report [14]) for now I'll continue my PSA on well funded bitcoin startup valuations (reference my valuation estimate of Bitpay, a rapidly growing payment processor [15]), I bring a forensic analysis and valuation of Coinbase, likely the 2nd largest money exchanger in the bitcoin business.
Valuation Case 2- COINBASE
Revenues for Coinbase is calculated based on global monthly transaction size (US$) of the company. Annualizing the transaction resulted in Total transactions for 2014
As per the information available, Coinbase charges 1% as transaction fee resulting in the revenue of the company.
|
Table 3- Revenue Forecast, US$ |
||||||
|
2014F |
2015F |
2016F |
||||
|
Annual Transactions*, US$ |
1,085,488,973 |
1,248,312,319 |
1,435,559,166 |
|||
|
Transaction Fee (%) |
1.0% |
1.0% |
1.0% |
|||
|
Total Revenue |
10,854,890 |
12,483,123 |
14,355,592 |
|||
|
*Growth assumed under moderate scenario |
||||||
|
As per the news for funding in Coinbase, the valuation of Coinbase ranged between US$140 million – US$1 billion. Based on weighted average (by applying 70% weight to the lower figure in the range), the above valuation is derived at US$398 million. Applying the multiples at which Bitpay and Circle are estimated to have been funded recently (using average revenue multiple of Bitpay and Circle), the valuation based on 2015 and 2016 revenues is as shown below: Table 4- Relative valuation |
||||||
|
Particulars |
2015F |
2016F |
||||
|
Revenue ($) |
12,483,123 |
14,355,592 |
||||
|
Multiple Comparable- Bitpay and Circle |
16.0x |
13.5x |
||||
|
Valuation (US$mn) |
200.31 |
194.23 |
||||
Of course, we feel that these rapidly growing payment processor companies, although now profitable and expanding their reach like weeds, are barely touching the tip of what the Bitcoin industry will look like just two years into the future.