The Breakdown - Why Coinbase’s First ICO Fell Flat

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Tuesday, November 18th, and today we are talking about an ICO fizzle. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, well, Coinbase's first ICO is in the books, and frankly, it was a bit of a dud. Monday saw the first fully compliant token sale in the U.S. in around seven years on Coinbase's new platform.

Starting point is 00:00:47 The subject was Monad, a new Layer 1 token that has been one of the hyped up projects in VC circles all cycle. The project was seeking to raise up to $187.5 million through the sale, and things got off to a quick start. There were $43 million in sales in the first half hour. Sales quickly trickled off after then, and only around $100 million worth of the tokens had been sold. as of last night. Now, raising $100 million isn't nothing, but the tepid demand, at least relative to expectations, isn't a great sign given other recent sales. Last month, Mega-Eath did their token sale and sought to raise $50 million from investors outside of the U.S., and that sale was vastly overcommitted, with investors pledging around $1.4 billion. That's the kind of frenzy that many

Starting point is 00:01:25 were expecting from ICOs returning to the U.S., but it just didn't materialize. Many pointed to the terrible market conditions putting a damper on the sale, with Chain Yoda commenting, modad waited three whole years for the bull market to end before launching a token. Others blamed Coinbase. Roids tweeted, Monad flopped by choosing Coinbase to host its ICO. No one wants to deposit into their Coinbase account just to use it for on-chain stuff, and Normies couldn't care less about Monad. After 12 hours, it's still 50% undersubscribed.

Starting point is 00:01:51 Mega-Eath was and still is the clear winner. They simply let us deposit directly into a contract, and they raised almost a billion and a half dollars in three days. You'll be lucky if you can profit on this. Some argued the tokenomics, meanwhile, are not favorable for re-referable. retail buyers. The coin-based sale consisted of just 8% of the tokens, while early investors in the team will have between 5 and 20% of their tokens unlocked on day one of the chain launching. The ICO priced the token at a $2.5 billion fully diluted valuation, which would put Monad

Starting point is 00:02:16 just outside of the top 50. An analyst for stake Sito said, VC coins are bad and Monad has raised over 20% from VCs and 50% of the total token supply belongs to teams and early investors. Simon Didick of Moonrock Capital tweeted, interest in the Monad public sale is surprisingly underwhelming, and that's despite it being one of the most hyped upcoming ecosystems and the very first public sale on Coinbase's official launchpad. Market conditions aside, I genuinely expected much more demand not going to lie. But honestly, I love to see it. It tells me retail is getting smarter, far more valuation sensitive, far less willing to buy every random narrative that gets pushed. To me, it's also a strong signal that the L1 infrastructure premium continues to fade. People are tired of the

Starting point is 00:02:54 thousandth chain. They want real use cases, real businesses, and real revenue. And last but not least, if you want exit liquidity, maybe don't exclude Europe from your sale. Now, sources close to Monad noted that this ICO isn't being done on a first-come, first-serve basis and will remain open through to the end of the week, meaning, in their words, there's less incentive for a big rush on day one. Ultimately, Monad managed to catch the worst week for crypto sentiment for at least six months, so it's not all that surprising that demand is a little flat. In the bigger picture, the limp sale raises questions about Coinbase's ICO platform.

Starting point is 00:03:25 The original plan was to fire off an ICO every month for the foreseeable future. Monad wasn't viewed as a small test launch, but as soon as the platform was announced, people began speculating about a potential base token. On Monday, the Coinbase Twitter account changed their bio to December 17th, which is a month from yesterday. Many imagine this was hinting at a base token sale coming next month as the follow-up to this fairly mild debut. Look, ultimately, I think that this is just another indication that retail never came back this cycle and just doesn't care. Basically all the stuff we talked about on yesterday's show. Now, back in Bitcoin Land, Michael Saylor is buying more Bitcoin.

Starting point is 00:03:58 Strategy announced the purchase of 8,178 Bitcoin worth around $836 million. Micro Strategy buying hasn't really been newsworthy for some time, but this week's purchase is a big deal for a few reasons. First, this is their largest purchase since July. Micro Strategy slowed down after the summer, and although they rarely took a week off, most of their buys over recent months have been in the tens of millions. That slowdown has been driven by a lack of funding. The stock has been trading relatively close to the value of the Treasury, so Micro Strategy haven't been able to issue more stock without diluting their Bitcoin per share ratio. Issuance of bonds and preferred stock has also slowed right down as the market seemed to be a little saturated by the company's myriad of

Starting point is 00:04:34 securities. Two weeks ago, MicroStrategy rectified the situation by tapping into the European market for the first time. They raised $715 million in yield-bearing preferred stock denominated in euros, which funded the bulk of this purchase. This purchase has also boosted net asset value for the company back to a relatively healthy 1.2x. That ratio dipped below one last week, which locks Micro Strategy out of a lot of their funding options. Legacy internet and infrastructure are brittle, plagued by downtime, coverage gaps, and outdated financing models. Communities and builders are left behind while capital sits locked out. Althea is changing that. Since 2018, their technology has powered resilient, sustainable networks across

Starting point is 00:05:12 the U.S. and abroad. With Althea L1, they built the world's first blockchain purpose-built for utilities and telecom, turning infrastructure into a transparent, investable asset class. Through liquid infrastructure, networks can now be financed in real time, operated more efficiently and scaled to meet the $3 trillion telecom and utilities market. This is fintech for infrastructure, connecting capital directly to builders and returning revenue seamlessly to funders.

Starting point is 00:05:36 No middlemen, no bottlenecks, just sovereign, resilient infrastructure that works for people, communities, and investors alike. Learn more at althea.net and find them on Crackin to join the future of infrastructure finance. While all of that is positive, the menagerie of micro-strategy's preferred stock

Starting point is 00:05:53 got taken to the woodshed on Monday. These instruments all have various properties, but one example is these stretch preferreds that are designed to trade at a stable value of $100 and offer a 10% annual dividend. That security traded as low as $93 on Monday. Basically, it seems as though the market no longer believes that micro strategy can make good on their promise of 10% dividends. A lot of the micro strategy bears were taking a victory lap yesterday, but some of the bulls are still holding strong. T.D. Cowan reinforced their buy rating on the stock despite it plunging to a fresh one-year low. They believe the stock still has 170% upside over the medium term, writing that recent price action has more to do with market

Starting point is 00:06:26 volatility than the company's ability to accumulate incremental Bitcoin. Jeff Dorman, the CIA of ARCA, rallied against the extreme takes, writing, it takes less than five minutes talking to any debt or equity expert to understand that Sailor will never have to sell his Bitcoin unless Bitcoin has already fallen so far that his selling isn't irrelevant afterthought. He may never buy Bitcoin again. And if your entire Bitcoin thesis is that one large buyer will buy forever, you're definitely wrong. He is no longer a relevant marginal buyer compared to ETFs, but micro-strategy selling Bitcoin is not even remotely a concern. Over on the Trad-Fi side of the house, the CBOE is preparing to launch perps next month. The CBOE, which is typically known as an exchange for commodities derivatives,

Starting point is 00:07:05 will go live with Bitcoin and Ethereum perps on December 15th. The contracts will be a little different to crypto-native perps. Technically, they will have a 10-year expiry. They will also apply a daily cash adjustment to keep prices in line compared to around two hours for crypto-native contracts. The market will also trade 23 hours a day, five days a week, rather than the 24-7 we've come to expect on crypto venues. Still, this is fully regulated and legal perps becoming available in the U.S. on a trad-fi trading venue, which is a big deal. Rob Hawking, CBOE's global head of derivatives said, as perpetual futures have historically been traded offshore, CBOE is excited to help expand access to these products within a U.S. regulated, transparent, and intermediary-friendly

Starting point is 00:07:43 environment. Now, it is unclear whether any meaningful amount of institutions have been holding back from trading crypto due to a preference for perps, but the option will soon be available if there's any out there. More realistically, the contracts give many U.S. institutions their first exposure to perps and the benefits of the unique crypto instruments. Namely, traders don't need to roll over their contracts from month to month, which adds needless friction to the market. If these products are successful, you could imagine the structure being brought to other futures markets over time, as it is theoretically more efficient. In crypto circles, there's been a bit of a negative stigma around Purps over the past month since the 10-10 flash crash, but that event didn't seem to be a

Starting point is 00:08:15 problem with Perps themselves, but rather market infrastructure failure specific to Binance. Ultimately, this could be another beachhead for crypto ideas to find their way into TradFi. Finally, today, we can't get out of here without briefly touching on price, which is in absolute freefall. Bitcoin traded below $90,000 overnight, and although there's been a slight recovery this morning, no one is feeling great about it. Bitcoin is now down over 2% on the year, and fears that the cycle could be over are crystallizing. Analysts on CryptoQuant's platform pointed to 148,000 Bitcoin worth of selling last week from small wallets that had been holding less than a month. An analyst called Crazy Block wrote,

Starting point is 00:08:48 This fire sale occurred with Bitcoin at roughly 97K, a level far beneath their average purchase price. This was not profit-taking. This was a significant loss realization on a monumental scale. Still, John DiAgostino, head of institutional strategy at Coinbase, remains optimistic. He argued that the downturn is mechanical rather than fundamental, adding that nothing material has deteriorated in crypto's underlying picture since late September. That is, of course, the fundamental bet for the bulls that Bitcoin's collapsing price is about macro factors. The effects of liquidity receding are fairly obvious in the higher

Starting point is 00:09:16 risk end of the stock market as well, so there's a certain validity to that view, none of which makes holding Bitcoin through a 30% drawdown any more enjoyable. Investment Bank Bernstein wrote in their Monday note that this quote does not feel like a cycle peak. Unlike other cycles, we never really got a blow off top where Bitcoin pushes up 20% into a final high. Retail euphoria never returned as we were just discussing, and overall the cycle has been strange and difficult to judge. Bernstein's base case is that this will be a relatively shallow correction and not the bone-chilling 60-70% drawdowns we've experienced in prior cycles. Their analysts are watching to see if the $80,000 level from last year's election serves as strong support. Matrix Fort, meanwhile, believes we're headed

Starting point is 00:09:52 into a mini-bear market. They wrote, our data showed a market losing momentum and lacking the catalyst needed for a sustained rally. With ETF flows weakening, OG investors reducing exposure and macro conditions offering no immediate catalyst, the path forward remains highly dependent on upcoming policy decisions from the Federal Reserve. Meanwhile, odds of a December cut have now stabilized at slightly less than even odds. Overall, a very rough beginning to the week and a continuation of a very ugly November. That's going to do for today's breakdown. Appreciate you listening as always, and until next time, be safe and take care of each other. Peace.

The Breakdown - Why Coinbase’s First ICO Fell Flat

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