How expensive are crypto startups anyway? –

in the fourth In the quarter of 2021, Coinbase’s stock traded around all-time highs, worth more than $340, before starting to fall as technology stocks corrected in the new year. Those declines continued through 2022, causing Coinbase to continue to lose highs at the start of the year.

The company’s quarterly results released in February were strong, but it warned of a slowdown in trading activity. That slowdown in trading activity continued, leading to US crypto exchange gains in the first quarter pushing the value of its shares to new lows.

The Exchange explores startups, markets and money.

Read it every morning on or get The Exchange’s newsletter every Saturday.

Despite a recovery to about $67 as of this morning, Coinbase’s value fell to just $40.83 during the sell-off, which began in November.

From a high-flying direct listing with a massive market cap showing that crypto-forward firms could generate metrics that traditional investors noticed, Coinbase’s fall was dramatic.

The decline in stocks was also painful, as the declines weren’t just due to changing market sentiment about tech companies – though that didn’t help. The company’s rising cost structure and declining revenues made it clear that it was more expensive and variable to extract money from the crypto market than some investors in the public market had anticipated.

As much as Coinbase helped boost investor interest in crypto startups last year, it can now have the opposite effect. Coinbase was proof that crypto companies could make huge profits, but its success was based on the rising demand for crypto assets and services. A strong Coinbase meant a strong web3 market.

What is the value of those same startups now that Coinbase has been repriced and the underlying market slips into the crypto equivalent of a recession?

In the recent Q1 results’ call investor, the company had notes on that point. Let’s investigate.

The public-private valuation gap

Before we dive in, it’s worth noting that little in our work today is unique to crypto. Most investors, both private and public, overvalued technology companies last year. Those erroneous valuations, set during one of the hottest periods for investment ever, have spilled over into the technology market and are still being addressed today.

But the crypto market has a special problem, which is that the total venture capital peaked not in the fourth quarter of 2021, but in the first quarter of 2022, which means that the investment cycle for crypto startups stayed warm longer and crypto startups will take the pain. feel (if the time comes). to manage too rich private valuations) slightly later than their more traditional counterparts.