Dogecoin reaches an insane price, Coinbase goes public, and German financial companies suddenly look pretty small. Values are losing touch with reality. How much longer can this go on?
Every bull market inevitably strives towards its peak – towards a point at which the madness takes over, at which the markets reach prices that can no longer be rationally explained. At this point, prices then stand for a moment, like a cartoon character in free air – only to collapse and usher in the bear market.
When this point is reached is a difficult question. If it were easy, it wouldn’t get that far at all.
One indicator that the market is approaching that top might be in the madness: the degree to which the markets are crazy. And in terms of that, the crypto market outdid itself last week. And it did so in such a spectacular way that it exposed the inanity of all values. Some events represent that more than anything else.
Coinbase on the stock market
First, last week the U.S. exchange Coinbase went public. The stock issuance became by far the largest IPO in the crypto world; in terms of market capitalization, Coinbase is larger than almost all banks in Europe and becomes one of the top 30 financial companies in the world.
A few numbers on this:
Coinbase CEO Brian Armstrong promptly sold nearly $300 million worth of shares – but that represents just 1.5 percent of his stake. Armstrong thus became a billionaire many times over overnight.
Coinbase’s stock market price. Source: Finanzen.net
Currently, a Coinbase share costs around 280 euros; shortly after the issue, it was at times more than 330 euros. The current market capitalization is almost 57 billion euros; the previous high was around 67 billion euros. This would make Coinbase one of the ten largest companies in Germany – worth almost as much as BMW and more than Adidas.
Allianz Insurance, Germany’s most valuable financial company, is even more valuable, with a market capitalization of 90 billion euros, while Deutsche Börse, at 28 billion, and Deutsche Bank, at 21 billion, are together worth much less than Coinbase.
It’s not as if Coinbase is a small company. But it’s just one of quite a few crypto exchanges, and one that’s also focused primarily on the U.S. market. At four billion dollars, Coinbase yesterday recorded less than two percent of the total trading volume listed by Coinmarketcap. Even assuming that much of that volume is fake, Coinbase is only skimming a small portion of the profits. The exchanges Binance, OKEx and Huobi handle a significantly higher daily trading volume, Bitfinex, Kraken, Bithumb and some others are on par or only slightly below Coinbase.
So are there a few more €60 billion companies in the crypto markets?
Germany’s most valuable companies. Source: Finanzen100.de
Coinbase’s stock market valuation perhaps makes sense if you look at the company’s revenue and profit – currently. In a bull market like we’ve had for a good half year, especially in the last few months, every crypto exchange is making shiny profits. Especially Coinbase as the market leader in the US.
Still, a market valuation of nearly 60 billion euros seems quite a lot for a single exchange. The bull market can’t last forever, and there will come a time when Coinbase’s profits will be much lower. In the end, by day, Coinbase does focus on a much smaller slice of finance than, say, Deutsche Börse, and has far fewer customers than, say, Deutsche Bank.
The markets need to know that. Therefore, the valuation of Coinbase only makes sense if one starts from the future: from a future in which Coinbase is one of the largest banks in the world. Or, in other words, a future in which the current bull market has been just the prelude to something much bigger. And that brings us to the second mighty spoils of madness.
Such Profit, Much Wow!
Many of you are probably familiar with Dogecoin: One of the few cryptocurrencies from 2013 or 2014 that has somehow remained relevant to this day. It started as a joke, but now you can even gamble with Dogecoins in some casinos. For more information check out Funsatoshis.
Dogecoin is a “memecoin”, a cryptocurrency that in itself has no pretensions of being taken seriously at all. Technically, Dogecoin is a trivial fork of Litecoin, in terms of memes, the coin shines because of Doge as well as memes along the lines of “much wow, such profit”.
Doge, Dogecoin’s namesake meme dog.
Dogecoin has never completely disappeared, but has dropped pretty low in the cryptocurrency rankings. In 2016 and 2017, one Doge was worth just $0.02 cents, in Bitcoin mostly 20-30 satoshi, with outliers to around 80 satoshi, to still be worth less than 20 satoshi by the end of 2020. If always has been one of the most famous Cryptocurrencies.
- In February, however, Doge shot up to more than 100 satoshi. That was just the beginning, though. Last week catapulted the coin to around 700 satoshi, putting it in fifth place in the cryptocurrency rankings.
- You first have to digest how astronomical the gains are. In bitcoin alone 3500 percent. Anyone who invested one Bitcoin in Doge in December now has 35 Bitcoins; anyone who bought 2,500,000 Doge for $500 in 2017 can sell them for $1,000,000 today.
- Some hump and scrounge for a lifetime, never to become millionaires – and others bought Dogecoin a few years ago for a few hundred dollars. “Such rise, much profit, wow!”
Dogecoin’s dollar chart can only be displayed in logarithmic scale. Yes, this is delusion. But is there any reason that is rational? Even if only somehow and vaguely?
One reason would be Elon Musk’s gold handshake. The Tesla boss has been tweeting for some time about Dogecoin being his favorite currency, presumably because the multi-billionaire and arguably richest man in the world has a rather fun relationship with cryptocurrencies and knows the power of memes. Dogecoin is probably the epitome of the ridiculousness of money for him. But at the same time, just about everything Musk tweets about turns to gold. That’s the gravity of wealth.
A second reason may lie in the Reddit forum /r/wallstreetbets (WSB). This forum was primarily responsible for a round of small investors giving some hedge funds a bloody nose in the GameStop scandal. Since then, it has come to represent the uprising that the swarm of small investors are rehearsing against the big guys in the stock market. Not socialism, but capitalism and market collusion are bringing the revolution.
Actually, the discussion of cryptocurrencies in the forum was forbidden. But on Wednesday, a day before the Coinbase IPO, the moerators decided that discussions about three cryptocurrencies would be allowed: Bitcoin, Ethereum and – you guessed it: Dogecoin. The community spun freely, which is why the mods banned crypto topics again just one day later. But the genie was out of the bottle: the WSB community had already turned on Dogecoin, and the discussion ban only heated it up even more.
So that’s how it happened that a cryptocurrency that is technically completely boring and that no one uses for serious transactions – that such a cryptocurrency raises a market capitalization of more than $50 billion. That’s almost as much as the largest crypto exchange in the US and more than twice as much as Deutsche Bank.
That’s insane, and that’s ridiculous. But I’m pretty sure there’s an important message in there about the value of all things – a message we might prefer not to hear.
The ridiculousness of all values
Let’s put it all together: A crypto exchange that makes about two percent of total trading volume is worth more than Deutsche Bank and Deutsche Börse combined, and a cryptocurrency that is neither technically interesting nor seriously used – and has no such pretensions – is worth almost as much.
Values are ridiculous. They have lost touch with reality and are a mere illusion. The Coinbase IPO demonstrates this in a beastly way, Dogecoin mockingly imitates this.
The whole thing can go on like this, of course. If Dogecoin is worth $50 billion – why shouldn’t Bitcoin reach two, three, four or ten trillion? Will may not move mountains, but it can move many billions. What is stopping Ethereum from becoming a trillion dollar coin? What stops the will of a swarm gone mad from deciding to make Tezos, Bitcoin SV, Cosmos, Avalanche or Kusama – to name just a few examples – a top 10 coin?
At the same time, however, everything reaches its climax. The intoxication is followed by disillusionment, mania by depression, illusion by realization, and laughter by sadness. What the market can give, it can also take away, and the more it can give, the more it can take away.