The Coinbase Effect

++Coinbase added Litecoin for direct purchase today, and litecoin (LTC) is up about 30% as a result. The rumor of this addition may have also contributed to LTC’s 100%+ rally over the last 2 months.

++The only other currency Coinbase added (beyond its initial offering of Bitcoin) was Ethereum back on July 21st 2016, just a day after Ethereum’s hard fork. Ethereum’s addition to Coinbase produced an immediate 14% rally, although it’s hard to tease out the real effect given the volatility surrounding the hard fork. Ethereum’s accessibility on Coinbase (and then Gemini) likely contributed to its massive rally over the following 9 months.

++Are these rallies rational? Yes. There is a very heavy accessibility premium in cryptocurrency valuations. As a cryptocurrency becomes easier to purchase and easier to store, it’s valuation should rise…and it clearly does.

++What does this mean for investors? We enjoy a tailwind if we’re willing to invest in cryptocurrencies that are harder to access. If and when those cryptocurrencies then become more accessible either by being added to Coinbase, offered in trust form, or purchasable via ETF, we can expect the valuations to generally rise substantially.

About Ari Paul

Ari Paul is co-founder and CIO of BlockTower Capital. He was previously a portfolio manager for the University of Chicago's $8 billion endowment, and a derivatives market maker and proprietary trader for Susquehanna International Group (SIG). Ari earned a BA in political science from the University of Pennsylvania, and an MBA from the University of Chicago with concentrations in economics, entrepreneurship, strategic management, and econometrics & statistics. Ari is a CFA charterholder.
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2 Responses to The Coinbase Effect

  1. S.A. says:

    Looks like the Mt Gox programmer made his fortune in Ripple. (over a Billion $) Founded and is running Stellar.org. Will see if explosion in XRP spills over. Maybe inter-bank fintech in Asia heating up?

    Like

    • Ari Paul says:

      I view Ripple as a textbook Bubble. Valuable as a tech, but it works with any asset or token, no need for banks to use XRP, so I doubt they will. I could well be wrong, but can’t find anyone to explain to me why. Thanks for the datapoint!

      Like

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