Bits: Crypto’s Center of Gravity

TC: How do you think about its valuation and whether it’s sustainable? So much of the company’s revenue derives from transaction fees and invariably, competition is going to drive those down to potentially zero. Robinhood already offers commission-free trades on crypto [and is also expected to go pubic soon].

GT: In the short term, you think about it as an exchange. In the long term, you need to think about it as what is: a trusted on-ramp and user experience, and then [there’s] also the infrastructure.

We were actually the first seed investors and largest institutional holder of stock in Bison Trails [a firm that specializes in building blockchain infrastructure for banks and other companies] and was bought by Coinbase late last year [though the deal was announced in January for undisclosed terms]. This is a company that I think a lot of people should pay attention to even now, because all of crypto is switching from proof of work — [an energy intensive process] that is how Bitcoin and Ethereum currently get to consensus — to [a new way of mining called] proof of stake, which is far more efficient and pretty much all of the newer blockchains are shifting to [and that rewards miners with transaction fees].

So this was a huge strategic buy for Coinbase and sets them up to be like a cloud infra company the way AWS is. And if you spend time with Amazon’s annual report, you realize that [infrastructure] is a massively profitable space. So that is the way to think about Coinbase.

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