Big Technology Podcast - The Ethics Of Fintech — With Dan Dolev

Episode Date: June 29, 2022

Dan Dolev is managing director and senior analyst at Mizuho, where he covers fintech companies Robinhood, SoFi, Affirm, Block, and others. He joins Big Technology Podcast to discuss fintech's ethics and opportunity, explaining who the industry serves, whether it's actually better than the current banking system, and how big it can get. Stay tuned for the second half where we dig into Coinbase's business and its recent turbulence.

LinkedIn Presents. Well, if the market has a cold, then fintech or financial technology has the flu. Every company from SoFi to PayPal, Square, you name it, Robin Hood, which has been in the headlines this week, seems like it's been a disaster for all of them. I think that we've been long overdue on the show to have a deep discussion of what's going on in the financial technology world, and especially now, now that these companies that have enabled what was supposed to be a democratic revolution in the finance world, Many of those dreams haven't come to fruition, at least yet. It's time for us to dig in and figure out what's going on.

We couldn't have a better guest to do it with us today than Dan Dolev, who is the managing director and senior analyst at Missouho. He is a great analyst. He's on CNBC all the time, covers companies like, Dan, you can correct me if I'm wrong here, but Robin Hood, a firm, SOFI, Coinbase, you name it. We're about to get into that. And more. Dan, welcome to the show.

Hey, Alex. pleasure to be here. I'm glad we solved all the tech issues, and it's a big honor to be on your podcast. Well, that's great to have you here. And yes, tech issues, we get those every week. So the true the hero behind the scenes is Nate Goatny, who manages to turn these around quickly. So we usually thank Nate at the end, but the man is a sate. I can tell you, your technology is better than the square analyst day. Their technology was awful. You've already won on that. Low bar to clear. So we're going to talk about financial technology. I think, you know, sometimes with these discussions, it's always a given.

Okay, of course, there is an area called fintech. There's an area called biotech. Financial technology is interesting because we have like a pretty well-established banking system with, you know, certain safeguards for people. And most people don't, well, maybe I'm being ahead of myself. Most people don't seem to have problems with their banks. Generally, the bigger system they do. But the banks, I don't hear too many complaints about them. You can help me shoot down that assertion if you'd like.

So I just want to start with this very basic fundamental question, which is financial technology. Why does it exist? What is it trying to do? Is it trying to replace banks, disrupt certain things within banks? Why do we have a fintech industry? And what's the opportunity? look this is like an excellent question and i would say there's um different answers to that question right is you know thinking through what you're saying i think you know the the gospel here

you know if you're really into this is basically there's a big group of people out there that are not well served by the banks right like we are all like sort of you know we have great lives and, you know, you know, very cushy jobs and we're all doing really well. But there's a lot of people, you know, in America, but also globally, like that are underbanked or unbanked. I think in America there's like 40, 50, 60 million people who are either underbanked or unbanked, i.e., they're not, either they have a bank account, but that bank doesn't give them anything. It doesn't give them credit. It doesn't give them any services that, you know, like that they need. And the fintech industry sort of emerged out of the need of those people. This is kind of the grassroots movement.

It emerged out of the need of those people to actually have more access to the financial ecosystem. So initially it was these, you know, the Western unions of the world, et cetera, and the cash checked. And that morphed into sort of more com, with technology, it morphed into more complicated and complex apps like the cash app on the one hand, the buy now pay later, firm on the other hand. And sort of all that this neobank era of like the chimes, et cetera, of the world. So I think that's the, that's kind of what, that was the need that created the fintech industry. And I really think that that that's kind of probably the biggest sort of driver, the biggest moat to the industry is like servicing the unbanked and underbanked. To your point, right.

Banks are doing fine. Most people don't need fintech. And so how does that, well, first of all, I would say that, um, anything is an improvement over Western Union. If you've ever tried to send money through Western Union, it is a disaster and anything is an improvement over there. That's why when I was in El Salvador, and I know I like to talk about this a lot on the show, and I saw people adopting Bitcoin.

It's now legal tender there. I thought, not, hey, this government should invest in Bitcoin, you know, through the Treasury. But this actually might help, you know, above all remittances. So when you talk about the promise of fintech, that definitely makes a lot of sense. And it resonates that there's folks that are underserved by the banking system. I recant my opening statement. That being said, what is the opportunity then? Because if it's mostly going to the unbanked folks, you know, we're just coming through a moment of sky high valuations for these fintech companies.

Now they're on the other side of that. So how do you think about the opportunity in fintech if basically, you know, a lot of tech is, you know, let's disrupt what's in. What's, you know, the current leader. But from my understanding, you know, listening to you, it's not let's disrupt the J.P. Morgan. It's, you know, let's fill in the gaps that they're missing. And if that's the case, what's the opportunity? Because you look at some of the valuations of some of these companies. And, you know, they're way higher than, then you would imagine if the opportunity is simply just to fill in the gaps of the mainstream banking system. Right. And I would say that the, what we're seeing right now, the dislocation in the market that we're seeing right now is a function of, I'd say, at least two forces that are working together. One, as we all know, COVID is a round trip. Everything that went up, went down.

And fintech, particularly payments in fintech is a leading indicator. So you're seeing basically payments in fintech peaking, I call this fifo. First in, first out. Payment has peaked fastest during, you know, before COVID. So, i.e. in like the second quarter of 2020, 2020, basically everyone was like piling into payments. It's had an amazing 12-month run. And then it was the first one to start kind of like the broken story started with multiples for the payment ecosystem and now it's down. I think the bigger picture is it's almost like, you know, why is payments so bad right now?

And the reason, the answer is just it's too good and everyone wants a piece of it. And I think that's what's happening. So if you think about like if you kind of parse out the, so like if you think about, say, let's think about paper. Let me give you some specific examples, right? So before we go in, I mean, I just want to again, like let's let's zoom out before we go into like why the stock has fallen and and you know risen like if you think about a jp morgan their market cap is 340 billion you know when we look at like some of these other companies

uh i had a bunch of them open earlier um but you know they they were like basically some of them were like half of that um you know we had a firm for instance i know if they were that high but you know you look at it like i don't know a couple years ago 40 50 billion 40 50 so we're talking about this isn't exactly so you know supplementing the bank industry it's it's replacing in some ways so do you think a you know the valuations really never reflected what the opportunity was be maybe the opportunity is bigger than you led on originally or something in between i think the opportunity for certain names in certain areas is probably bigger than we think like i honestly think like you mentioned a firm i think a firm

could be the visa and master card of buy not pay later right and what shout out what a firm does and explain why that's the case that's that's actually interesting so a firm is like the market leader in the u.s and buy now pay later right so everybody knows buy now pay later like think of it as instead of pay as you go uh oh as you go right you know kind of like credit as you go yeah and apple's getting into that area now also so okay so if you think let's go back to this if you think about a firm right instead of um instead of like kind of like buy not pay later think of it is like credit as you go. So the traditional credit card system is basically you get a FICO score, you get a credit

card or you get several credit cards, and then you have like a huge APR, you owe a lot of interest, a lot of people are like kind of in debt. And what by not pay later offers in the firm is like the front runner in the U.S. is basically like the ability to get credit on a product by product basis. And why is that so powerful? Again, there is a certain group, there's a certain demographic. a certain socioeconomic group that is, you know, and doesn't want to have credit cards.

They don't trust credit cards, right? Especially younger people. And they prefer to buy things and finance them. It's basically a cash flow management tool. Finance them on a, you know, step by step basis. And, you know, a firm has built a brand that basically is a big lure to a lot of people. So when they want to buy sneakers, when they want to buy something on Amazon, on, they check out using a firm and they finance, say, and paid for, et cetera.

So that's essentially what they do. It's really not that complicated of a business, but it's become a big, they're answering a big demand trend and they're there to service it. So we're going to get into every company as we go along on this show. But I just want to ask you another broad question. You know, I like tackling these broad ones in the beginning. You have, okay, so first of all, a firm by now, pay. pay later. I don't know. Does that, does that, well, let me ask this quick one and then we get to

the bigger one. How does that impact people's credit scores? So when I, you know, opened a bank account and went into deposit a check when I was like 18, the banker, you know, pulled me aside and it's like, you should open a credit card because you want to build credit. Can you build credit in the same way through a company like a firm and never having a credit card open? Yeah. So you actually, that's the, that's the interesting point. Don't actually build credit. You basically build credit on a firm right but isn't isn't oh but but like your credit score it's not going to help you build your credit score it's not going to help you but it's not going to hurt you if you right if you know that's interesting so again remember there's a lot of people i think

what we're dealing with here is like a new generation right gen z that prefers it's like they prefer to share the car then to own a car they prefer to it's it's basically taking credit and turning get into as borough as you go but eventually they're going to want to buy a house and having a high credit scores is important for that so doesn't this hurt them in the long run it it if they if if they don't do anything else that helps them get a high fico score it's going to be a problem in the long run i agree right so there it has to be i i i think you know the question that you're asking basically is this completely substituting credit or is this complementary to credit? I think right now they can like live side by side. So you're not doing everything on buy not pay later. You're doing

some things on buy now pay later and some things on credit. But you know, I think what eventually you'll see Alex is that you'll see regulators come in and there's already like voices in DC. Remember like Elizabeth Warren's of the world. Actually Elizabeth Warren, they sent a letter to you know, to try to the CFPB to regulate buying out pay later. So I think eventually, which is a good thing, you will get more regulation around buy now, pay later in a firm, and which also means that you will get a FICO score. Right. Yeah, that is a good thing.

And this is kind of the worry that I have when I hear about like the way that all these fintech companies are operating. And I just want to state for the record, I believe in free choice, people should have, you know, if people make choices, you know, they, you know, they should have those options. And I really don't like the whole idea of like a keeper saying like these options shouldn't be available because, you know, they could hurt people like let people make decisions on their own versus like have like, you know, obviously like I think a government should help protect people with some regulations. But like, you know, taking options away to me is, you know, is ridiculous. However, I think about the way that these companies work and the incentives they bring to bring to bear. And I wonder if the fintech industry is going to go after the full.

that are, that don't have bank accounts or are underserved by the current banking system, how do we make sure, and this is like kind of different from, from, you know, the typical conversation, I think, but like about valuations and all that. But how do we make sure that they don't end up getting, you know, attracting customers, you know, from folks that are underserved from the banking system and exploiting them? For instance, you know, we look about, look at Robin Hood's, the way that they do business in is this payment for order flow, which just says, okay, you know, the trades are free. But meanwhile, like, you have the middlemen that are making, making a lot of money off it.

You have, you know, a firm which says, by now, pay later. You know, meanwhile, folks aren't building credit score. You have Coinbase that says, you know, go ahead and buy all these, you know, shit coins. You know, even with, with, you know, a manual to say, this is how you buy a, I think, a coin or an index called bullshit, which, by the way, happens to be down 99% or something like that over the past a little while. It's going to go down to zero. Yeah, we'll go down to zero. That's, that's amazing. Yeah. And so I guess the broader question is how, you know, should we be celebrating fintech or should we be skeptical of fintech? I'm sure there must be some good

in there, but I'm kind of curious. You look at these companies all the time. So are they, are they helping people who are underserved or are they exploiting them? They help them by exploiting them. Okay. That's interesting. Can you say more about that? Let me give you an example. Like, I, you know, I love examples because that's just being concrete. Let's think about the cash app. Best example of serving the underserved, right? Why is that? Sort of, well, because the demographic of the cash up.

So in America, there's like two different P2P solutions, right? There's Venmo, which is mostly like, you know, pampered millennials, east coast and west coast. And there's like cash app, which is a lot southeast, you know, lower income demographic. you know kind of like minorities like it's it's sort of become a thing right it's in it's in it's in rep songs right it's become a thing so again i'm not saying they're not exploiting that but you know you know why are they doing it because they can so so how do they make money let's go back and think about how they make money right because that's at the end of the day so um about 45% of the cash app revenue which is gross profit and revenue

is kind of what, you know, synonymous for them, is from instant deposit. What is instant deposit? A lot of people don't know that. They charge you 175 basis points, which is 1.75% to transfer money instantly to your bank account. Or you could do it for free if you wait two to three days. Now, who has the need to transfer money instantly to their bank account? you know i'm not being kind of cocky or anything but i don't i can wait two three days but there are some people out there especially the people that use the cash app who cannot wait two three days

they got to pay rent they got to pay you know someone they got to send money home they are the the 99% right right and they're taking well i was going to say taking one percent from the 99 But they're taking close to 2% from the 98%. That pond is over because they raise prices. So it's not exploiting, but they're doing it because they can because the end market, those users really need debtor. So what they would argue, and I think there's a lot of like to be on their defense right now, what they would argue is we're providing a service to a certain demographic.

that in the old days, you mentioned like the Western Unions, et cetera, I don't know Western Union very well, but we're providing a service that the cost of this money in the cash checked kind of like environment and like the old way, like 10 years ago, was much more expensive. So the opportunity cost is higher. The APR that you pay for money is higher. And they say, look, we're providing a service. We're democratizing this. I mean, to me, there's a finite kind of time horizon on this instant depositing. But that's just one example of how you can, let's not exploit, that's a bad word, but take advantage of a need of a certain demographic for money because they don't have other options. And that's just one example of maybe

helping and hurting at the same time. Yeah, you know, that's interesting. So basically in other words, it sounds like what's happening is the old system was so bad that you could still come in and take some margin but you're still going to be less exploitative than the old system because the old system was that bad exactly you're better you're better than the way it used to be done you're more efficient right but you're still probably overcharging for something that should be free so tech does what tech does which makes tech so interesting is it applies values at scale.

It allows actions to be taken at scale. You know, this is kind of old hat at this point, but something like a Robin Hood or a Coinbase. I'm actually kind of curious, now we have a little bit of vision in retrospect. Back in the meme stock days

and the GameStop days, which we talked a lot about on this podcast, there was an idea that, well, people on you know retail traders are turning the tables on the old institutions by using new tools and you know there was worry like okay maybe we did need some of those speed bumps but now they they've gone in and they you know many people invested a lot in individual stocks and meme stocks they invested a lot not just in bitcoin but in various cryptocurrencies that have since you know taken a hit and we're now at a moment where

a lot of these stocks are way down, and a lot of these cryptocurrencies are way down. So, you know, let's take a look, you know, over the past year where there was initially this like, oh, these are empowering tools, but now a lot of people are paying for the party, right? So ultimately, do you think this is a good thing or a bad thing that these tools had democratized so much access to investing? I would bifurcate, I think between those two names that you mentioned, I think Robin Hood is a good thing and Coinbase is a bad thing. Okay. Why is that?

Well, let's talk about the good thing first. Like, why do I think Robin Hood is created value? Because they basically came to a new demographic, a new age group, right? Teenagers, younger people and basically said, hey, we're going to create, investing is really complicated. Investing is really, you know, kind of opaque and old school. Let's come with innovation, with an amazing. amazing interface and you know give you free trading right and and basically become your um you know

a funnel to be to have you as the uh sort of as a you buy you know the customer acquisition is you know the the value proposition is come in when you're very young and then just basically grow with you over time what did they do that's really good they lowered trading fees to zero across the entire industry, single-handedly, Schwab, T.D. They all had to follow suit and basically cut fees because of Robin Hood. So what did they do? They helped democratize. I kind of hate that term because everyone's trying to democratize something. You know what I mean? Yeah. Yes, I do. Yeah. So it's sort of like it's almost like a cliche. But think about Robin Hood did. The effect of Robin Hood was to lower or bring trading fees.

literally to zero. Now there's a debate on PFOF, etc. We can talk about that too. But like they, they single-handedly, you know, disrupted the industry. So I think they did more good than Ben. Coinbase,

on the other hand, basically Before we go to Coinbase, Robin Hood also sort of gamified this, the day trading thing. You even mentioned recently, I think this was probably you, that it's the, Most engaged audience, six to seven transactions per week.

We know that it's like 90% of day traders lose. So I get bringing down the fee. But like, I don't want to say the speed bump was good because let people make their own decisions. But when you build this addictive product that, you know, people want to trade like crazy and we, you know, it's all good when everything goes up. But now everything has come down. Is it, is it just, you know, an easy vehicle for people to learn? hard lessons or where do you sort of stand on that front i'd rather they learn the hard lesson with small amounts then make even more irrational decisions down the road like if anyone is sort of

you know put their life savings into amc sorry and lost it all you know or or one of these meme stocks. I think that the question is like how many of them have basically I think look there's a moral deeper moral decision to everything and especially when it comes to money and investing

and then the balance is to your point have they done more good or bad to humanity or to the economy I think if I had to do a verdict they think they've done more good but yeah it's an open debate I agree like the meme stock era is is

We can finally look back at it. It's a mutation, right? It's a mutation of, so you could say they gamified it, but really what gamified it was the people that were using it, right? It's kind of, it's almost like the. Oh, that's, well, it's designed that way, though. It's designed, yeah, there's a casino kind of element to this. But, you know, it's, you know, like, you know, it's, it's not just them.

That's what I'm saying. Like, it's everyone. They probably took it to the umpthi of degree. But they've also captured the hearts and minds of a lot of people and made and brought them to be engaged. I think there has been certain mutations and the Reddit era and all that stuff. Again, COVID, I don't want to blame COVID. It's kind of old.

But, you know, COVID put all these trends on steroids. But as you know, COVID is a rounder. Always think about perspective, perspective, perspective. like we are at the sunset of COVID we could be sitting here in a year doing the same podcast and we wouldn't and it would be like 1999 we wouldn't be talking about like it just a it's a one time in history bump yeah that just got on steroids I wouldn't extrapolate that to be right long term and so that's by the way I wish I had Robin Hood when I was younger because I would have learned those hard lessons and then realized how feudal day trading is for most people who don't do it professionally and even then and probably just said okay go s mp 500 and invest a lot and see that return flourish but instead i had no no on ramp and it was confusing and i started investing too late yeah and i agree and look at like in every in every cycle um i remember you know i'm old enough to remember in like 2001 like i remember

like a cab driver in New York City who was trading stock on his stock on his like palm pilot palm pilot oh wow it wasn't invented yet on the palm pilot yeah and he was like I'm making so much money I'm making so much money and then you know that's the end yeah so it's sort of like you know when when and maybe there is a sense of it on the meme stock era so that you know that there's no you know when when investments become irrational and I think there's a There is an element of it on the Robin Hood users, and that's, you know, I'm not a big fan of it, but it's maybe the necessary evil that comes with the, you know, opening up investments and educating it to your point to a younger generation.

Yeah. Can we, I was sorry. Why don't you finish that thought and then I want to kick to a break? No, I'm done with that thought. This wasn't like, yeah, let's take a break. All right, great. So let's kick to a break now and then we'll be back here with Dan Dolev, right, after this to get to why he thinks

Coinbase is bad. Hey everyone, let me tell you about the Hustle Daily Show, a podcast filled with business, tech news, and original stories to keep you in the loop on what's trending. More than 2 million professionals read the Hustle's daily email for its irreverent and informative takes on business

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You can watch a lot of his stuff on CNBC. Just go to YouTube now. Type in Dan Dole. You'll see some interesting clips through the years. And Dan has really had a front row seat to this wild swing that FinTech stocks have taken. So we'll get to that as soon as we'll get to that. we go through the Coinbase stuff. Let's get to Coinbase. You have some reservations about Coinbase. It's a fascinating company. For many reasons, A, it's the leader and basically crypto. It's the leading

crypto trading app and holding app in the world. It's also very public in terms of its political point of view. There's no politics in the office, which it made a big thing. I think their CEO, Brian Armstrong, is quite an interesting character. He doesn't care for. Journalists very much, they're very much in telling their own story. Just like kind of a fascinating, they're an interesting product and also interesting political vehicle. But anyway, let's talk about the company itself, what it does and why you're kind of skeptical about it.

Yeah, I'm very bearish on Coinbase and things. I don't know if having a front row seat in fintech was that much fun over the last year. Oh, yeah. Well, it makes for a fun podcast episode, that's for sure. It definitely, if it gets, if it, if it gets, you know, people to enjoy our podcast, I'm all about it. So thanks. You're suffering as our game. I don't want to have that roller coaster again next to.

Yeah, I believe it. It gets a little quieter. But look, I mean, what is the, what are we like, what is the, what is the, what is the, the whole promise of, of crypto, if you're bullish on crypto, right? The promise of crypto or what crypto should generate or what should have. is lower the cost of transactions between people, between. So it's basically the promise is kind of like, if I want to send you money in El Salvador, why do I need to go through like a remitly or one of these guys?

If you're like a foreign worker, you know, working out of the Philippines and sending money back to your family, one of the use cases of crypto is the ability to basically transact fiat to crypto crypto to fiat lowering the cost of acceptance right so if you think about the cost of acceptance when you go to a merchant it's like 3% 4% 5% sometimes we buy not pay later so if you can lower the cost of acceptance and do it on a cross-border basis then you've really created

value with greater you've really democratized what is coinbase doing what coinbase is doing is it's basically like a it's like a centralized exchange for a decentralized you know I would say asset class if you want to call that asset class I don't really think you should call it ask us but it's so there's a juxtaposition even in the term

of what they do right that crypto if you believe in crypto you should believe in decentralized crypto and in this so what what they're doing is basically they created a I mean casino is a hard word is is a tough word, but they basically created like a, you know, it's kind of like a gambling. Like is, is this coin going to be better than that? And then the whole thing is, is they're not

productive assets. So, you know, those alternative coins. And I would even say Bitcoin and Ethereum, they're just more of the same. So they're, but basically coin based is they are bound to have diminishing. I mean, there's a stock. I don't like it. Right. They're bound. They've done very well for themselves, but the trading fees on these things are going to close to zero. And there's no use case to all these alternative coins. So basically, they're encouraging people to make, you know, to make bets on these coins. And I think eventually that's going to end in tears. It already is ending in tears. So I don't think that's it. Yeah. People are definitely in prime stage. Yeah. Yeah. I think from a moral perspective and also from a moral perspective and also from

a stock picking perspective, it's bad news. Right. Yeah, they are an interesting company. We will have some more Coinbase questions to come. So there's Coinbase and there's also FTX. There's this very colorful character, Sam Bankman-Fried. What's the difference between Coinbase and FTX and why does FTX and San Bankman Freed mean there?

He's like considering an acquisition of Robin Hood, although he said he's not. He's trying to work on some other stuff. Why is he and his exchange, you know, held in much higher regard at this point? Yeah, that's a good question. I don't know FTX per se. Yeah. Well, it's a very good question. I don't know.

They're bigger in Europe than in the U.S. I think that I talking about the acquisition, actually it's like, you know, there has been news yesterday on Robin Hood. I actually think that if they did it, it would be like peanut butter and jelly. Because what does FTCs have? they have, you know, your, you know, non-U.S. presence and they have a better balance sheet than than most other guys. And what does Robby know that? And they have much less people than Coinbase. And Coinbase has like 1100. And which just announced an 18% layoff. FtX has, I don't know, in the 300s from my understanding. Correct. So they don't deploy as many people. They, they run it in a

much smarter way. Yeah. And I think they run it in a, you know, I don't think that, again, I don't know them very well, they're private, but I know, I mean, from what I understand is, it's, at least they don't tell a story, a false story about this, the crypto economy. They call it like it is. But if you think about the Robin, just a word on the Robin Hood FTX thing, I think it's really interesting kind of as a side note because that peanut butter and jelly, right, FTX has the, you know, the technology and the non-U.S. users and Robinon has this amazing brand and can expand beyond. And even they understand that they need to expand beyond crypto. That's why they're going to work.

But that's a different thing. So Coinbase is so controversial because you really think that no one really thinks that take rates are going to stay at one and change. They're going down. But again, I don't know why FTX is held in a higher regard. It's a very good question. It's a mystery to me too. I don't know the answer.

And I don't know it very well. this private. Now, we're going to get to Coinbase's business in a second, but since we've been doing all the societal fund issues, in the beginning of this month, there was a petition where Coinbase, I think, Coinbase employees wanted to remove their executives. Apparently, they had taken money, basically taken money off the table earlier. And there was this whole, I mean, it's very strange. We also saw SpaceX employees, right? to Elon Musk to tell him to stop tweeting, he fired them right away. And now we have this, you know, Coinbase Rebelly, not a political one, but actually just saying that here it is from the Wall Street Journal. It was a position to remove several top executives, including Chief Operating Officer Emil Choy, Chief Product Officer, Soroggi, and Chief People Officer L.J. Brock. And it appeared on Mirror and complained that the company's recent performance,

about the company's recent performance and demanded that the executives be removed. I think Brian Armstrong said that this is really dumb on many levels. If you want to, this is so interesting. If you want to do a vote of no confidence, you should do it on me and not blame the execs. There is probably lots we can be doing better. But if you're at a place where you want to leak stuff externally, then it's time for you to go. You're hurting yourself and those around you. I mean, holy crap.

For a company that outlaws, you know, discussion of political issues, they sure have a lot of drama. What do you, yeah, I guess if this is new to you, I'm just kind of curious, what's going on with the leadership there? I mean, and what causes an employee base to revolt in this way? I think that they, you know, they did it. If you go back to their IPO process, right, it was a direct listing. So usually when companies go public, they go public to raise money. They didn't go public because they were at the height of the COVID, you know, crypto mania. In June of last year, right, exactly a year ago.

They went public to, and the liquidity in, it was a liquidity event to enrich themselves. They sold shares and it's been very public. How? You know, dimensions that have been bought, et cetera, right? So I feel like when, you know, when it potentially on the one hand, management is telling a certain story, but then on the other hand, they're, you know, selling shares and it's, so it feels like they're, I mean, again, I'm trying to think about what would cause that internally. And it's, you know, it definitely sounds like there is, there's a dissonance between

you know that what you know what they're saying and then some of the behavior and then the second thing is it maybe they realize that hey our 85 90 percent of our revenues are at risk of going to zero if take rates go down to a few basis points and all the other projects that we've done aren't ticking off like nfts not going anywhere all these other staking and stuff revenues are kind of correlated with crypto. It doesn't look good.

Yeah. And they only make money when people trade from what I understand. Oh, yeah. Yeah, they don't make money on volatility.

Right. And people have stopped trading. I mean, they've been selling, but. Oh, this is actually a really interesting point. Can I mention something interesting? Yeah, of course.

So we've done a survey, Alex, we've done a survey recently that shows you, this is again, evidence-based work that we do. Mm-hmm. The average cost basis

for the average crypto or Bitcoin holder on Coinbase is $21,000, which means that the average Bitcoin investor on Coinbase, on the Coinbase platform is now underwater. What does the cost basis mean and why does it mean that they're underwater? The average person, so we did a survey again, it's not. Oh, the average cost at which they bought their Bitcoin is $21,000. Is that right? And so now Bitcoin is much lower than that.

point something. Yeah. So they're down. So the average coin base user is down. What are the implications of that? That's fascinating. That's exactly the point. That's exactly.

Yeah. So now we're dealing with a new era. Uh-huh. And this is interesting. This is the, I almost wanted to hire a casino psychologist to analyze it. Right. That would be a great, because now we're dealing with the realm of like psychiatry and psychology.

Right. So now basically, this is the first time. in history, really, that the average investor in crypto, called Bitcoin as sort of the beacon of crypto, has lost money. Now they have to make a decision, fight or flight. Buy more. So we ask people, and this is really interesting, again, take that with a grain of salt. But we've asked those same people, at what point, at what level are you going to sell or give up, it turns out that 50% of the people said, this was actually, like, I wonder what it would say today, but this was about a month and a half ago when Bitcoin was still at 30,000.

50% of the people, they said, I'm never selling. Again, at 30,000, life was good. They were up 50% on their Bitcoin. At 20,000, life is bad. They're down. They're not losing a lot of money. They're better than two weeks ago when it was at 17, but they're not losing. they're down. And the other 50%, it sounds like the tipping point, we call that research,

the tipping point, the Bitcoin tipping point, is about 9 or 10,000. So at that point, people would just run for the exit. Because that means it goes to zero. It means there's a run on the banks. That means that basically you've given up. But again, this is all like a, again, it's not a, what about all the asterisks is, you know, this is a non-scientific survey. But we did survey like two to 300 people ish it's a pretty good survey and by the way we did that same same survey twice with a span of with a span of like six to eight months and that 21 000 kind of yardstick keeps showing up as sort of that you know consistently so there is something about that 21,000 dollars there's a reason why bitcoin's like hovering up and down that 21,000 dollars it's an it's in

really not just because it's a black check but there's yeah it's it You know, so I think there's something very interesting going on right now. There's a real debate in people's heads. Like, am I fighting it or am I flighting? It's a fight or flight at this point. And I don't know. And I'm not a casino analyst, so I don't know. I just know one thing.

Most casinos, you know, because the house always wins in the casinos and people still come back. The house is Coinbase right now. But exactly. But, but, exactly. The house is Coinbase, right? but the casino makes less money when 10 casinos open up on the same strip. And I think that's what's happening with Coinbase. Back in the day, they were the only one.

Right. And now finance is lowering fees. You know, FTCS is getting more aggressive. So, you know, Robin Hood is already offering it for free. So even if this category remains, it's going to come at a much lower take rate. You're going to see the exact same mechanism that you saw with equities. whereas trading fees goes to zero. I would argue that because these are non-productive assets,

99% of them are going to go to zero, if not. So, I mean, I think that the outlook for, I make a big distinction between blockchain and crypto. Different thing. They mix together, but I make a distinction between. I don't own any crypto. I have no intention of owning. Actually, I'm lying.

I own $10 of Bitcoin. coin. Now it's five because I was checking pricing on the on the on the on the cash app to see when we were initiating I was like how much does it cost me to buy five dollars 10 dollars and then oh interesting 20 I stopped okay so that makes sense and this is from that journal story that was actually in in June about the employees writing to coin base interesting yeah and and so something where the CEO said actually when if you don't like it you should quit right and It was something else. He said that multiple times.

But let's just read the numbers. So this was in June. Coinbase shares are down 77% so far this year. And about 83% off their November record high of 357. On Friday, shares fell 7.9% to 58.71. And since then, shares have fallen even further because Coinbase is now 51. That is, I mean, look, we know the NASDAQ and the S&P 500 are down. But fintech overall is just getting slaughtered.

Why is the market taking, you know, taking all this out on fintech, what's going on? I mean, you watch these stocks all the time. Again, I think part of it, when you think about fintech, it's separate, you know, software is software. Right. It's, there's a SaaS and, you know, it's sort of like, it's much more, I'd say, unanimous. When you think about fintech, it's different verticals. Like, you know, the verdict for buying out paylators should not be the same verdict as crypto trading. Right, but people tend to group them.

They group them together. So now we're in this market dislocation. I think that's going to settle itself out. Like, you're going to see that. You're going to see PayPal kind of going, you know, PayPal has nothing to do with crypto. I mean, they'd like to tell people, or at least last year they were talking about it, but they really don't have anything to do with crypto. So how difficult does that make your job? because you're like trying to put price targets on these on these companies so i mean like here's one you

had robin hood at a 68 dollar uh price target last year and it went up to 70 and now now it's at nine so yeah you know cool do you do you search your name on twitter ever because it's it is a lot of people who are like um dan's got to answer for these calls so like how did yeah tell me a little bit about oh really no man thank god i'm on twitter Don't do it. Don't do it. No, no, don't look. Don't look. So, but, but I'm curious, like, what you, what you think about it. But send me the link. I'd like to see. Yeah. Okay. I'll send me. I don't know. Yeah. Send me the link. I mean, I would lose, I'll be honest. If I was in my shoes trying to, you know, this market has just, you know, obviously shot up, you know, and then plunged down. And I would lose my mind trying to like, you know, obviously, someone like you reads the earnings reports, thinks about the market, you know, thinks about the company and the market conditions.

and then says, bam, like, this should be 68. But, like, again, I lose my mind trying to figure out what's going on in this market when we're seeing such volatility. Yeah. I mean, if you think about sort of the way it should be done, and I'm not saying this is the way people do this, but if you really kind of sit down, like, let's call it the Warren Buffett way, not sort of not, maybe that's too much, right?

But the way it should be done, looking at these fintechs, like the first thing you need to figure out is the sustainability of the revenue stream. So we have to like figure out the debate on is this revenue stream protectable, right? Like we talked about the cash app and instant deposits. I mean, I would want to think that it's sustainable, but I have concerns, right? Because there's, you know, this seems to be too good to be true maybe, right? So how sustainable? And then you have to think about what is a terminal margin of these businesses. And then once you do that, that's how hard our job is.

Once you figure out this one and then that one, then you have to figure out what multiple you put on that. Right. And the multiple is the hardest thing to figure out. And I always liken it to measuring the distance in space. You're like, oh, well, the sun is X, Y, Z miles from the moon. but it's closer than the distance to Mars. And like, so it's completely, you live in a world that has like, it's like basically like floating around in space, like the people at the international place state, you know,

the international space station, right? They're just like floating around and they're like, you know, the water comes from above and it comes from below. There is no, there is sometimes there, you know, nothing justifies what happened last year. And that's when we put these price targets because the multiples were very high. And the correction is too deep. The answer is probably somewhere in the middle. Yeah.

Like last year, it's like, you know, real estate in midtown Manhattan. There's some years where the market's hot and everyone pays up for that. And there's some years where the market's not hot and people don't pay as much for it. So our multiples vary with marketing to market because there's no other way we could do. We're right. I can't. I can't control the market. The market is what it is.

But I can control the sustainability of the revenue stream, which I still think is very strong for, say, Robin Hood and the terminal margins, which I think is very strong. So it's really, honestly, like our numbers have come down because they've guided down. But what's come down more than the numbers is the multiple, if you know what I mean. Yeah. And it is interesting. Like when you adjust your price target, the market really listens to you, Dan. I mean, you see these stocks move. It's pretty wild.

Okay. Well, I did not know it, but I had no idea. I mean, look, I think it was a bad call on Robin Hood. And I still think wholeheartedly, honestly, it's the most innovative name in payments alongside Square. And honestly, they have, you know, two feet on the ground, so to say, more than Square. I feel like Square, Square lives in like, Bitcoin bubble right now and I think Vlad and Biju whatever can't pronounce the co-founders they really know what they're doing

I really think that they are you know very very focused and it just sort of happened to be in a I mean when you go public at the height of an all-time cycle

like it's 1999 everything looks like like a tough call. Yeah. It's hard. That's what I'm saying. Perspective.

Long time. Yeah. Do you see any calm waters on the horizon? Are we going to be in the choppy stuff for a while? Once you get clarity, I do see calm waters. And not because I'm staring at the back bay here in Boston at the airport. Yeah. And it's very calm outside.

The here, let me show you. Looks nice. So it's beautiful. I do, once we get clarity on the depth of the recession and the duration of the recession, you're already calling it a recession. I mean, I'm not a macroeconomist, but I think that's what the Fed is trying to throw us into. Because with the Fed has a very tough job right now. They relates to raise interest rates.

And now they're basically fighting the inflation by raising interest rates. Yeah, yeah. Okay, sorry. Go ahead. Yeah, so, but I'm saying, like, I'm not a macro, but I would say, yes, I think a recession is coming. If I had to kind of think about, like, you know, I think it's probably, it's probably, I think that's what the Fed is, like, getting us into, right? And I agree that that's what they need to do to stop inflation.

There's nothing worse than inflation. Inflation is destructive, you know, go back to, like, Germany in the 1920s or U.S. in the 1970s. It's a disaster. You don't want that. So once we get that clarity, everything will come down. And then people will start basically saying, okay, you know, it might not be the mania that we've seen in 2021. But again, it'll be somewhere in the middle. I actually think the second half at some point will have a nice rebound in the volatility should debate.

As we get further out of COVID, because remember, There was so much dislocation and everything we just talked about in the podcast, it needs to be put behind us. It was a singularity in history that we won't see for another hundred years. Right. And I'll just leave with this thought. I have a source in shipping who told me back in the day, the containers were 2000. They had got to bring a container in from China. It used to be 2000. They had gone up to 15 or 20,000. And he told me, Alex, inflation is coming. And inflation. came. And now those 20,000 containers are now 8,000. So they're on the way down. So we could see supply chain easing. And we could see the Fed. Sorry, I'll let you have the last word. Can I give you my, can I give you my insight? Yes, please. One of my, one of my kids' friends, dad, he's a genius. He imports canned food from China. A year and a half ago, he told me, not a year and a half, a year ago, he was like, Dan, inflation is coming. Same thing, because he

I saw him at like the baseball game. He's just like, his name is Dave. He's like really, you know, really smart. I saw him and he goes like, Dan, for the first time, I'm getting deals. There we are. Yeah. So this is the beginning. Yeah.

He called inflation and now he's calling. Why do you need Gary Gensler and Jay Powell get Dave on, on CNBC? Exactly. Just got to speak to your shipping bros. I mean, really, it's sort of been been the core of this whole thing is the supply chain. And I think that's why you're going to see the market. So you're already seeing like expectations for interest rates coming down in 2020, late 2023, 24.

And then you will see some calm waters coming. And then you'll see kind of quality rising. Right. So there'll be a, I still believe Robin Hood is an amazing asset. And I think Coinbase is, is, is not good. Yeah. Dan Dolev, thank you so much for joining. What a pleasure speaking with you.

Thanks for coming on. Anytime. My pleasure. Okay, that'll do it for us here on Big Technology Podcast. You can check out, basically go to tune in on CNBC any given day where there's FinTech News and you'll see Dan there. So I encourage you to do that. That's where we're going to wrap at this point. So appreciate Dan coming on. Appreciate you listening.

We gave Nate a shout out at the beginning, Nate, you're a hero. Thank you, Nate Kowatni for editing the show, mastering the audio. Thank you, LinkedIn for having me as part of your podcast network. What a blast. It's been. And thanks to all of you, the listeners, for coming here. Weekend, week out. We'll be back next Wednesday with another episode with a tech insider or an outside agitator.

Of course, please go to my LinkedIn page. We'll talk about it. We have a newsletter that's dedicated to the podcast there. So I'd like to see you there. And that'll do it for us here. So we will see you next time on Big Technology Podcast.