The SEC is Cancelling Coinbase | Disaster.

[Music]

hey everyone meet Kevin here coinbase

has just been warned by the SEC of

potential Securities charges via a Wells

notice which was named after a dude in

the 70s whose last name was Wells and he

thought it'd be the right thing to give

people a heads up that they were about

to get charged by the SEC so that way

they'd have a chance to provide some

more information to the SEC to basically

maybe not get charged by the SEC and

they thought that was a nice thing to do

now it's very interesting that this

happens right after apparently Kathy

Woods sold about 13 million dollars uh

in in shares of coinbase I don't know

how much that terribly matters though

given that they have a massive

837 million dollar position in coinbase

uh that's actually a little scary for

for Arc here although I don't think Arc

is really heavily worried about crypto

regulation not coming I think it's a

matter of if not uh or it's a matter of

when not if you're going to end up

getting approvals for things like crypto

ETF but right now the regulatory Waters

around crypto are pretty hot and

unfortunately for uh our

coinbase sits at a 6.35 holding out of

all combined funds for Arc and vast uh

sitting at a uh basically an average

position of 200 around 45 dollars for

the three uh different fund positions

they have for coinbase they have a

market value of nearly a billion dollars

837 million dollars in coinbase so the

idea that Kathy's selling 13 million

dollars of coinbase is really a signal

or anything I think is relatively weak

but I will tell you there is a bigger

signal of something that I don't like

seeing as much and that's when

Executives start dumping shares that

they just got assigned and unfortunately

those sort of Shenanigans have just

started happening take a look at this

this picture here is a filing from the

20 uh that was published on the 21st for

transactions that occurred on the 17th

and 20th and it shows Brian Armstrong

right here the Brian Armstrong living

trust who's the CEO of the company being

assigned 28 000 shares and then

immediately selling those shares so he

acquired the shares as an option for

zero dollars basically and then

immediately sold all of those shares

uh yikes for for market prices sitting

around somewhere around 76 bucks a share

well that works out to about 2.1 million

dollars of shares dumped by the CEO but

it wasn't just the CEO just days before

the report of this Wells notice from the

SEC certainly not insider trading at all

would never want to allege that because

no executive ever does that uh but

anyway what do we have here oh look the

chief legal officer oh wow the chief

legal officer also dumped about 2 000

shares now he still owns a whole lot

more owned somewhere around 62 000

shares uh left which is you know pretty

sizable position there somewhere around

what is that three times two somewhere

around six six to seven million bucks uh

in shares but just did a little dumpy

doodle there uh in this case uh Brian

Armstrong's living trust just basically

fully liquidated those shares for what

they were received so a nice little pump

up there of the Brian Armstrong living

trust but it also it makes you curious

what could the implications of this warn

notice be to the SEC and or from the SEC

and what are the fundamentals of

coinbase well let's look at some of this

so first uh here's the piece that sort

of breaks down some of what's going on

here the SEC issued a warning to

coinbase Via the wells notice the stock

is trading down in pre-market it dropped

in post market yesterday uh right now

Shares are actually down about 14 uh in

pre-market you can see that right here

14 decline down to 66 dollars so the

executives literally just yielded out

right before this notice was made public

which it's likely they heard about the

notice before the public did anyway so

it seems a little susp but what is this

war notice actually do well the war

notice based on discussions with staff

the company believes these potential

enforcement actions would relate to

aspects of the company's spot Market

staking Services coinbase earned

coinbase Prime and coinbase wallet

potential civil action May seek

injunctive relief discouragement and

civil penalties all right so in English

the SEC ain't happy with coinbase's

business they might take any profits

away that the company made they might

shut down uh parts of the coinbase

business through regulatory uh uh

requirements immediately and they could

find coinbase civilly now obviously a

lot of this is coming after the collapse

of FTX Celsius Voyager three arrows

Capital nobody knew that these ended up

being it would end up being as big of a

fraud I mean these are like as big of a

a Bernie Madoff here as uh as uh you

know basically has happened since 2008 I

don't think anybody even knew these were

a fraud uh but now it comes out that Sam

bankman freed basically defrauded

everyone and what do we got over here

well we jump in over here and the SEC is

Bay basically making everyone really

nervous what is Brian Armstrong's CEO at

coinbase now saying well he tweeted a

little bit of a story yesterday he

tweeted the following conveniently after

having sold the shares uh let's go ahead

and put it in reader View today coinbase

received a Wells notice from the SEC

focused on staking and asset listings a

Wells notice typically precedes an

enforcement action two years ago the SEC

reviewed our business in detail and

approved coinbase to go public now it's

very important to remember that the SEC

doesn't actually approve uh uh listings

that's very important to know the SEC

will review your filings and they'll add

commentary to your filings but the SEC

actually leaves it incumbent upon the

individual investor to evaluate whether

a business is a fraud whether a business

is financially viable and that's

assuming you can even get financials for

a business right coinbase is publicly

listed so in theory coinbase could be a

publicly listed fraud it's unlikely but

nobody knows uh but the point is just

because a company is a public company

doesn't make them

Gucci it doesn't make them less likely

to go bankrupt look at Voyager digital

which was a public company in Canada

bankrupt Regulators regulation didn't

help at all over there

so uh Brian Armstrong here says that our

S1 which is your original listing

clearly explained our asset listing

process and about how much due diligence

we take on crypto coins and that they

look there's there's so much of an

unregulated environment in the space

right now there's a reason I've always

kept any of my exposure to crypto to a

very small and speculative amount I've

also very very clearly been extremely

concerned about stable coins but anyway

what do we have here well we understand

that this is all part of our journey to

reforming our financial system we are

right on the law confident in the facts

and welcome the opportunity for coinbase

to get before court basically the CEO is

saying look we think we can win in court

we think crypto is good and we think

we're Gucci that's fine but convincing

the SEC of that is going to be very

difficult specifically because the SEC

has has a way of being able to basically

come after people uh where they won't

regulate something

and then after the fact they'll say well

now after the fact we think something's

actually security and we're going to

find somebody for it now that might make

more sense of crypto tokens look what

just happened yesterday with Tron and

the SEC so just yesterday the SEC sued

multiple uh influencers and celebrities

for their involvement in promoting Tron

look at this

tron's Network native TRX token dropped

13 after the SEC announces charges

against Justin Tron and three of his

companies including BitTorrent and the

Tron Foundation uh market cap of Tron

sits at about 5.4 billion it's insane

look at that little tank there after the

SEC charges anyway the SEC is charging

the Tron Network founder with offering

and uh for the offering and sale of an

unregistered crypto asset Securities now

a lot of people would counter this and

argue do how could you legally list a

crypto asset anyway you don't let us so

in In fairness you have this whole

crypto Community that's like come on SCC

like tell us is it legal or is it not

but your silence lets it happen and then

you start punishing people after the

fact that leads to a lot of frustration

right now the other argument is that the

SEC is hamstrung by bureaucratic

processes and regulations that don't let

them create a clear listing process for

crypto assets who knows but the

definition for is crypto security or not

is is really unclear right now and that

makes really all of the crypto space a

very very risky to certainly massive

volatility like what we're seeing with

the stock price of coinbase this morning

but anyway uh they're also alleging that

the Tron founder

uh is fraudulently manipulating the

secondary Market with extensive wash

trading that's very interesting yeah

some folks here in the commentary are

saying it's basically like entrapment I

mean it it it's kind of it's kind of not

untrue right I mean it's it's like if if

you don't tell us it's wrong and then

and then you let people trade or sell

crypto assets and then you say oh it's

an unregistered crypto asset but you

didn't allow people to ever register it

or tell people not to do it then isn't

that kind of entrapping I mean it's kind

of like it's kind of like a cop standing

on a beach and you drinking wine on the

beach and there are no signs saying it's

illegal and there are no laws saying

it's illegal but there are also no laws

saying it is legal to drink on that

particular Beach and then all of a

sudden the cop decides you know what now

I'm pissed that they're drinking on the

beach I'm gonna arrest somebody for it

it's kind of like

but there's no law saying well you can't

drink wine on the beach and the SEC is

like well there's no law saying you can

drink wine on the beach and it's like

what the hell you know that's that is a

little odd a little odd so I I think

that's a good point regarding the

entrapment now somebody here is uh is

arguing that Brian Armstrong sells every

month you know that's like the most

classic defense that people give

Executives for dumping stock is that oh

this is normal I've just happened to set

up a a whatever it's called the 10b51

plans or whatever I just happen to set

up a plan that'll conveniently dump uh

millions of dollars of stock every

single month and don't worry because

it's all pre-planned it certainly has

nothing to do with information about

regulation you know is coming

uh so it's kind of incredible I like

this person who says you have to mute

Kevin because he tries his hardest to

understand crypto but got burned last

year and just buds it you know what's

really remarkable is I think the depth

of information that I provide on a lot

of either stable coins or tornado cash

or how cryptography Works uh really I I

think we're we're on like totally

different levels of competence uh I

think that I hate to say it but I think

that they're first of all there are four

levels of competence here okay uh the

four levels are uh very simple but

they're very important to know uh one is

unconscious uh incompetence uh and this

this is usually your your loud

commentary people uh then there are

people who uh consciously are aware uh

that they don't know consciously no they

don't know uh everything I I can put I

put myself here because the more I learn

about crypto the more I I realize

there's more to learn and think is

fantastic I think it's really great then

there are people who know that they know

right this is like your professional

level here and then there are people who

are what what's known as uh

unconsciously on

consciously there we go competent anyway

uh most of the loud uh screamers on the

internet who are like you're just for

the food are are like children who

actually think they know how to do a

lick of research and uh and and all they

can do is Scream fud as if fud equals

fake news there's a really big

difference between fear uncertainty and

doubt which is actually usually a very

reasonable thing to cover and fake news

right it is reasonable to argue that if

uh there are issues with counterparty

risk they should be talked about and

that's not fudding right uh there are

reasons to argue that Al algorithmic

trading in Bitcoin could could create

fluctuations in the Bitcoin price based

solely on the money supply that's not

fud that is coming up with with ideas

about why uh there's certain movement uh

in crypto and I think that belongs well

in the camp of reasonably asking

questions as as somebody who who knows

they're trying to learn more and share

perspective right this idea uh that

everything that doesn't say that oh

crypto's going to the Moon is somehow

fun is absolutely ludicrous the idea

that oh the CEO is allowed to sell

millions of dollars of stock a month

because he does it every month is

ludicrous it it like when did that start

oh conveniently at the top of the market

and all of a sudden as we're writing

down all of a sudden you're continuously

selling you know you have to be careful

uh with the the amount of uh moonshot

commentary there is on the internet uh

everybody just wants things to go to the

moon and don't get me wrong I I I love

when things go to the Moon as well but

this idea that uh uh you know you can't

share a negative perspective is is

remarkable to me but uh okay so let's

look at the actual numbers here for

uh oh yeah and then I guess I should

also argue that I didn't have any crypto

assets to lose I lost some money

investing in block by the actual broker

unfortunately because I thought

investing in the actual brokerages was a

good idea that obviously ended up being

an L but I sold every single crypto

related asset I had uh in um uh like

coins or whatever in January of 2022 and

I'm very happy I did that along with all

my stocks and all of my real estate I

sold everything now I didn't buy back in

at a perfect time we have to be fair

about that to mention that as well but

that doesn't mean it didn't have the

right idea at first it just shows the

challenges of being perfect with your

Market timing right uh you you could get

one side right but then you could be

less perfect on the second side and

that's the tough thing about timing but

let's look at coinbase's cash flow

statement for the year ended 2020 uh uh

two so a lot of people are asking me

about like hey how's this regulation

actually going to affect coinbase and I

think it's really important to look at

their financials and see okay well well

how is coinbase going to be affected

so uh I think the way we have to look at

this is we have to look at coinbase and

we have to look at their net income here

or yeah their net income were lost 2.6

billion dollars it's absolutely insane

of that they paid out 1.5 billion

dollars

in stock based comp I mean the company

is throwing money out of the window on

stock based compensation two people like

the CEO who are dumping their shares

that's a problem that's a problem but

but anyway so net cash and operating

negative 1.56 billion dollars they're uh

their their free cash flow is vastly

negative uh I mean you're sitting at

somewhere around negative one points

just over 1.6 billion dollars in

negative free cash flow how much cash

does this company actually have that's

not deposits right so we have to get rid

of custodial funds right here so you

have to look at okay we've got four and

then you've got some usdc amounts of

loan receivables it's a little

complicated when you look at bank like

institutions but let's go with uh

4.425 billion in cash here and then

let's look at not deposit liabilities

but let's actually subtract out payables

and accrued expenses you've probably got

about 400 mil here some borrowings I

mean you've got a lot of cash you've got

about four bill of free cash at least at

coinbase which is very good four billion

of free cash

now it's a little problematic though

because you did lose 1.6 billion dollars

of cash in 2022 so you really have a run

rate of like maybe a little over two

years here so if these negative revenues

continue at coinbase for the next couple

years you're going to have to raise a

lot of capital and you're going to have

to destroy a lot of shareholder wealth

because this this negative cash flow is

not going to be able to last now what's

really insane here folks this is

absolutely insane look at this their net

revenue over halved more than halved and

while their net revenue more than halved

their operating expense for technology

and development

doubled nearly doubled so more than have

on revenue and a near doubling of of

tech and look at this this is like a

more than 50 percent increase in SG a uh

uh that's insane

uh well specifically General and

administration going up about 700

million dollars uh technology and

development going up about uh 1.1

billion dollars so you've got about 1.7

billion dollars of more expenses with

Revenue that is actually uh three four

four point two billion dollars lower so

seriously minus 4.2 bill in rev and plus

1.7 billion expenses why would you touch

coinbase with a 10-foot pole you know

and then then they have a I would call

it a less than two year run rate so

you've got a business that has a less

than two year run rate its expenses are

exploding while its revenue is declining

and and on top of that you've got the

insane regulatory risk why would you

touch it

it does it doesn't make any sense to

touch this right now it's no surprise to

me that the executives are doing this

with their shares Milk The Cow while you

can man but it's going away it's it this

is scary and I mean how much fun the

analysis did we just do on this like

five minutes okay it's already a

disgusting Hot Potato do I really think

if I do more that opinion is going to

get any better no

of course not uh you know I mean you

could click around though okay yeah the

Bitcoin log price scale Let's uh let's

click bait everybody with the log scale

of Bitcoin it's going to the Moon don't

worry and and the reality is coinbase

will do very well if Bitcoin goes to the

moon I promise that the coinbase will do

fantastic if Bitcoin goes to a million

dollars uh which is a projection of some

people that'll go to a million two

million dollars it's not my production

but uh I think it's very very very

interesting