Maybe Coinbase is hard to value because it’s a ‘hyperobject’

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Howdy, readers. We waited a bit to send today’s edition of the Ledger because, frankly, we wanted a glimpse of Coinbase’s first day on the public markets.

But there’s no clear verdict: shares of $COIN debuted at $381, well above the reference price of $250 set Tuesday night, and the company’s paper valuation did indeed reach above $100 billion. The stock ambled around for the rest of the afternoon, though, sinking from a high of $429 back down to $334 at the close. (Keep in mind that this is not a traditional IPO, so trading sideways or down doesn’t have quite the same implications).

That volatility is certainly on-brand for a crypto company, since investment in the sector is often based on extreme speculation about what the future might look like. That long-term outlook has created serious debate over how to value the first major crypto company to go public.

Fortune’s Shawn Tully did the sensible thing: he looked at the numbers, and found that justifying a $100 billion market cap is almost impossible, in large part because trading fees will likely get squeezed by competition. On the other side of the aisle are analysts like Devin Ryan at JMP Securities, who believes Coinbase can successfully expand from trading to other revenue-generating services.

But the big risk for Coinbase – or maybe the big opportunity – is that its revenue is fundamentally tied to the volatility of the crypto-assets it specializes in trading. The company clocked an impressive $1.8 billion in revenue in Q1, but you only have to rewind to April of 2019 to see a very different scenario. With Bitcoin then trading at below $7,000 (please, stop kicking yourself), Coinbase was not sitting quite so pretty.

As we’ve explored here before, another Bitcoin crash is always possible, and it would take the price of other cryptoassets with it. When those numbers stop going up, traders lose interest quickly, and take their rich trading fees with them.

So if you want to talk about the value of Coinbase, you have to talk about the value of Bitcoin – and here, there be monsters. The reasons people buy, trade, and hold Bitcoin are incredibly varied, far more so than for a stock. It has been described as a cult, a religion, and a call option on human nature, in all its fear and greed (hence the volatility). At the macro level, Bitcoin is supposedly a hedge against government instability, but it has also clearly benefited from the largess of U.S. stimulus payments. Some of the recent rally may be because China is building a basically unrelated digital currency.

In short, Bitcoin has come to mirror and echo the economic reality of the world around it, often in bizarre and unpredictable ways. One interesting (though not necessarily enlightening) way to think about something so complex is as a hyperobject. The concept has been developed by philosopher Timothy Morton over the past decade, primarily as a way of thinking about global climate.

In the simplest terms, a hyperobject is something that we might talk about as if it were “real,” but which can’t be fully perceived, or maybe even understood, by humans. Like the climate, Bitcoin can’t be physically touched, and its completely open structure means it is constantly buffeted by the complexities of reality (in Bitcoin’s case, the global economy). As with the weather, this has made predicting Bitcoin’s behavior extremely difficult – especially for the kind of finance veterans trained on traditional metrics like revenue.

Bitcoin particularly fulfills one key feature of Morton’s hyperobjects. As a currency, it is inherently interobjective, which means that its value is based on what people think other people think about it. That’s often the case with speculative investments, but it’s a uniquely strong force in Bitcoin because it’s putatively a currency, and therefore by nature relies on sentiment itself as a fundamental (hence the cultishness).

And if you find Bitcoin perplexing, brace yourself: interobjectivity is spreading as a force in investing and finance, as social media and zero fees make trading more democratic, and chaotic. GameStop and other “meme stocks,” for instance, are effectively complex interobjective guessing games, driven more by sentiment, or even tribalism, than sales. And with that interobjectivity comes the kind of left-field volatility that leaves fund managers weeping and gnashing their teeth.

Now take that fast-changing guessing game and layer another one on top of it – Coinbase. It has to do all the typical things a company does, like acquire more customers and build a reliable service (which has been an occasional struggle for the company). It also, to match its current valuation, has to build other revenue streams.

And it has to build all of that on a foundation that might not be any more predictable than the weather.

Correction 4.15.21: This piece previously stated Coinbase’s estimated Q1 revenue was $1.1 billion. The correct number is $1.8 billion. We regret the error.

David Z. Morris

@davidzmorris

david.morris@fortune.com

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