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.