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Cipher Mining CEO on Coinbase's business model: They 'embraced' regulation

Coinbase is making its public debut via direct listing. Cipher Mining CEO Tyler Page joins Yahoo Finance Live to discuss.

Video transcript

ZACK GUZMAN: I want to bring on another guest here to discuss exactly that, a man who has, you could say, competed against Coinbase here in certain senses of the word. Maybe not directly, but has no doubt watched the ride here in Bitcoin prices and cryptocurrency prices across the board increase, focused more on the mining activity. I want to bring on the CEO of Cipher Mining. Tyler Page joins us once again.

And Tyler, when we're looking at the crypto space, of course, you as a miner benefit in the run-up in the prices here. But when it comes to concentration risks, I suppose maybe that is one similarity between a mining company and a company like Coinbase that really does, as we're seeing play out right now, trade along the enthusiasm when Bitcoin's price jumps higher now at an all-time high. So talk to me about maybe that risk and what you see when you look at a company like Coinbase.

TYLER PAGE: Yeah, Zack, thank you so much for having me back. It's great to be here. You know, I think this is a huge day for crypto. We're pretty excited for Coinbase. I mean, what I see when I look at Coinbase, friends of mine that have been there for many years and known them for a long time, we've reached this kind of seminal moment in the mainstream adoption of crypto, in my opinion. And I take two kind of lessons from their business model. And I think it has the applications to the mining space, at least is how we think about it at Cipher.

So, number one, they took a difficult to access technology and made the user experience really easy, right? My mom follows the price of Bitcoin, and she asked how she could buy some. And I told her go download the Coinbase app, right? And so they managed to make it very accessible, and that's helped grow the network.

I think the second lesson that we look to that, again, has some analogies to how we think about things in the ecosystem is, early on, they took a tack that adopted a stance of working with regulators and trying to seek more of a mainstream adoption. Rather than running away from regulation, they embraced it to try to create this bridge between sort of old economy and new economy in this space. And you see the results of that today. I mean, the valuation will be what the market determines it is, but it's amazing what they've built.

And so when I think about mining and how that could apply to the way we think about things, there are some analogies that we are thinking when I think about the vital infrastructure of the Bitcoin network that really relies upon the work that Cipher Mining does. We think about how do we manage the user experience for future adopters of the network. If you think this network continues to grow and be adopted, who's going to be using it? Today, we've got retail and family offices and increasingly institutional investors, whether it's funds or insurance companies.

How do you get to even larger pools of capital, be they public pensions or central banks, governments someday, using Bitcoin as a Reserve asset? Well, you're going to have to answer further risks that are challenges for their user experience and things like having more cash rate in the United States we believe will help with that.

AKIKO FUJITA: So Tyler, how should investors be looking at this company? Is it an exchange, a trading platform? Is it about an investment in the potential of the blockchain technology? How do you value it?

TYLER PAGE: Yeah, I mean, I think, look, this is the challenge of a lot of these high growth companies is trying to figure out just how much they're going to grow and how much of a true platform business it is. When I look at that business, I see amazing growth in users. And I see incredible growth in institutions adopting their platform. And so, you know, they have plenty of challenges as well in sort of how do you adjust for that growth and the very impressive revenue numbers they put out in the first quarter. How do you think about the challenges that are going to be there for them, whether it's DeFi or other players from the traditional financial world getting in the space? You know, there's lots of them.

So, it's hard to say. I mean, I think I look at it as a user growth story and one that has lots of opportunities to grow with the ecosystem. And so you've got to make your own evaluation for how well you think they will position themselves to take advantage of those opportunities in the future. But, you know, if I think about how we think about the space at Cipher, we're big believers in the continued growth of the Bitcoin ecosystem and ultimately the use of the network. And that spills into other coins and tokens. That spills into other areas of expanding user access. And so they have a lot of opportunities there.

ZACK GUZMAN: Yeah, Tyler, let me just return to my first question because I'm not sure I necessarily heard an answer there when we talk about concentration risk because of course, we saw what could happen when times are good. In Q1, Coinbase's 9 times-- ninefold growth in terms of revenue there in Q1 versus Q1 of 2020. That's very impressive. It's very strong, very good. But of course, Bitcoin jumped up quite a bit, hitting new all-time highs.

But I'm curious what happens on the other side, right? Because we've seen crypto winter, as it's called before. And you think about how many people trade on Coinbase because of Bitcoin and Ether. Granted, they've added newer assets to it. But I mean, if you're so focused on those, obviously, it seems like it would be a rather large risk if that price turns in the opposite direction, no?

TYLER PAGE: Yeah, I mean, look, if you look at their revenue mix, it's very heavily transaction oriented. I think the question, therefore, is, how do they branch out into other ways to make revenue? And how do you think about multiples on other lines of business they might build? I'm sure it's going to be a challenge.

But again, when I think more broadly about the growth of this ecosystem-- and I'll focus mostly on Bitcoin. It certainly applies to Ether and potentially other coins beyond that. It really is a story of a network adoption story. And we're still early in that cycle. And so it's going to be volatile, given that, you know, every day, there's questions about how broadly will these networks get adopted and used, and what are the likelihood any particular day that they go away? So there may be some kind of short-term ups and downs if you're really tied to the price of the token.

And again, that's what we try to do in our business. When I think about what's different about something like a minor, we are a little bit more infrastructure-driven. We have a lot of resilience in our profitability against drops in the price of things like Bitcoin. But I think ultimately, it's a long-term story about, does this network continue to be adopted and get used? And with that longer term time horizon, we're certainly very bullish.

AKIKO FUJITA: Tyler Page, Cipher Mining CEO, it's good to talk to you today. Appreciate you joining us. And we are looking at the board there over at the NASDAQ. Coinbase indicated to open at $350 a share. Remember, this is a direct listing. The reference price was set at $250 a share. So, 350 there. We're looking at a valuation under-- I don't know-- getting close to $100 billion there. But certainly, a big one. We will continue to monitor that as we wait for that first--