Hacker News Reader

Comment by georgeecollins | Hacker News Reader

The thing that shocks me is that anyone still trusts any of these exchanges except maybe Coinbase. I just heard the Kraken CEO in an interview touting his "partial balance sheet audit" for 2021. The interviewer asked if Kraken would have a full balance sheet audit (proving reserves) this year.

The CEO couldn't commit to a timeline for a full audit (ie not in 2022) but pointed out reserves were just "one component" of protecting customer's assets. That's like a captain saying that he wasn't going to check if there is a hole in the boat because hull integrity is just one component of a ship's voyage.

And on Reddit people seem to think Kraken is very dependable.

View on HN

I don't expect the Coinbase CEO to secretly leave the country with gold bars. But I do expect Coinbase to either go bankrupt or to face major lawsuits for years and to have very poor stock performance.

And yet I imagine people will be surprised when they find out that Coinbase insiders have only been selling (and have sold almost $4B worth of) their stocks every since the direct listing (not even IPO). [0] Chances are, Coinbase was more of your garden variety pump and dump where you hype your useless startup up, and dump it on retail at a hugely inflated "market price".

[0] https://www.marketbeat.com/stocks/NASDAQ/COIN/insider-trades...

Your link shows $82M of buying by insiders compared to just $47M of selling over the past 12 months, so I'm not sure I understand your point.

Interesting. 100% of buys were from two directors, Tobias Lutke of Shopify and Fred Ehrsam, former cofounder. 100% of sells have been management.

Management selling is pretty typical. You'd have to dig into Coinbase specifically, but if a big part of your pay is stock/options, you will generally constantly sell a portion of that. Obviously, a big spike in management sales can be a red flag.

It makes sense, though iirc over the life of Coinbase management has been a large net seller, larger than average.

I'm interested the directors have been buying. Is that typical?

Q2 2021 is when it was listed, and when insiders bagged $3.9B. Compare that with the scale of $82M or $47M. After Q3 2021, crypto started crashing and so did COIN stock, so I imagine insiders who knew what's up and wanted to dump got out already.

They were sitting on large illiquid unrealized gains until the IPO. I can't imagine that's strange behavior in companies going public. Some funds will sell into the IPO as a rule in order to redeploy capital to other early stage investments. For early employees and founders who could have had up to 99% of their wealth tied up in Coinbase stock, some diversification is hardly odd.

"during a gold rush, sell shovels"

Crypto tokens have no fundamental value, but as long as people are interested in it, Coinbase has fundamental value offering a service to get money in and out without the apparent BS and scams. It crashed hard- I think coinbase is actually a good investment right now, a solid business with underpriced stock.

Edit: HOOD is probably a good buy too for the same reasons.

You should probably say whether or not you'd benefit from other people buying into those.

COIN and HOOD both have an opportunity to make major changes and become profitable businesses. But just looking at their cash/debt/stock comp/revenue growth/expenses, it doesn't look great.

How much sustained interesting is needed to payback the investment? Selling Beanie Babies also has fundamental value.

I see what you're saying, but I remember reading on here months ago that Coinbase's debt was unimaginably huge. Doesn't matter if they have a good business selling shovels if they can't dig themselves out of the impossibly deep hole they're in.

Just looking at the stock perf. They have high trading fees and still lose quite a bit every quarter. They need to figure out their business plan when trading activity is lower, or figure out some way to drive trading activity.

It is hard to compete with ponzi scams while they are running. Maybe they will have a better chance now?

Without ponzi schemes they'd have no customers.

I think they have an excellent chance of being the last one standing. Unless we learn that they have also been operating a scam. If all they do is run a reliable exchange and don't get hacked, as other exchanges fall they'll probably get more business.

But I think if public interest wanes, and crypto sort of becomes this amway for nerds thing, then they'll probably flounder unless they prune back their costs significantly.

I don't. Crypto traders will never learn. They'll continue to see that coinbase has high fees, low volume, and a limited set of coins and they'll continue to use scammy unregulated exchanges. When one dies they'll just switch to the next one. The majority of crypto volume will never be on a centralized US regulated exchange.

You're being unfair. The half of the hull above the water line under the passenger boarding ramp is totally fine.

Yeah, its not like a pilot saying he doesn't know if the wings are coming off but that's just one part of your flight experience. The engines and the drink tray are just fine. Who is the PR person who coached that CEO?

But if you lurk on these Crypto threads you get to hear people who throw around financial terms they only half understand. They say do your own research but these "white papers" (btw how did that become a thing?) are these vague cut & paste web pages. No one seems like they could read a 10k. You can laugh about how dumb these things are but I don't wonder who falls for it.

What would a good whitepaper look like, when the underlying product is a scam?

Kraken is actually pretty far ahead — proof of reserves: https://www.kraken.com/proof-of-reserves

Jesse Powell also encourages people to self-custody.

Proof of reserves is worthless without proof of outstanding liabilities.

And the only way you're going to provide the latter is through something called an audit.

There's also a cryptographic way: https://syskall.com/proof-of-liabilities/#what

No on-chain solution is ever going to prove that your exchange doesn't owe a trillion dollars to a third party.

You need an audit for that. An audit. One of those things that has been done for centuries and millennia. It's not rocket science, it just consists of paying an accounting firm to look at your books.

(That, and having said books:)

This is just a web page describing a process that is not an audit of Kraken. If a company isn't audited by a third party who assumes liability for being wrong there are all kinds of things that could blow up.

This web page is also a great example of using financial speak to make it sound like they are doing the things that are considered important in their own special non traditional way-- or really-- without actually doing them. Who wants their account audited? Does your bank do that? I want the bank audited.

Isn't Kraken using the same metaverse auditing firm that is mentioned as being unknown in this exact document?

Don't worry, we purchased bilge pumps.

No tubing though. The pumps just circulate the swill.

Reply on news.ycombinator.com