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2) Another thread about crypto companies going public; see: IPOs: twitter.com/SBF_Alameda/st BAKKT: twitter.com/SBF_Alameda/st Coinbase: twitter.com/SBF_Alameda/st; and later

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Apr 14, 2021

1) Today, an exchange will list an exchange. One of them: --operates 24/7 --lists innovative assets --allows users to onboard --has a mobile app, website, and API --made $1b last quarter The other one is NASDAQ. Congrats, @coinbase.

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Bullish Announces Intent to Go Public on New York Stock Exchange

3) Alright, so what's going on with Bullish? Well really it's two different companies combined into one. It's an exchange, and it's a pile of crypto. About $6B of crypto and USD:

businesswire.com

Bullish, a tech company focused on financial services for digital assets, intends to go public on the NYSE via merger with Far Peak Acquisition Corp.

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2:37 AM · Jul 10, 2021Twitter Web App

4) It's SPACing at $9B, so that means $3B is the exchange if you value the crypto at market prices. So, what _should_ Bullish, the exchange, be worth?

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5) Well, they have a website, and a Twitter, but neither of those are going to help much: bullish.com

twitter.com

Bullish (@Bullish) / Twitter

Built for institutions and now widely available to users in 40+ jurisdictions. #Bullish

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6) As I understand it, Bullish is basically: a) build a centralized crypto exchange b) Require KYC c) write trades etc. to EOS blockchain c) have an AMM that provides on the exchange with the $6b of crypto Bullish owns d) let users provide in the AMM too (it's not live yet)

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7) So basically, Bullish going to is a standard exchange, except that it'll use it's $6b of capital to provide a bunch of liquidity. Is that worth $3B? You can be the judge of that.

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8) What about that liquidity providing? Well let's dive into an example. They have ~$5B of BTC on hand, and ~$1B of cash. Let's say they raise more and end up putting $1B each of USD and BTC in a BTC/USD pool, using x*y=k. Then, the pool has ~$5m offered within 1%.

Cryptocurrency Derivatives Exchange

9) Right now, ftx.com/trade/BTC-PERP has roughly 900 BTC offered within 1%, or about $30m. So while the Bullish treasury will help with liquidity, it won't be enough to make it top tier. How much will that providing cost in IL?

ftx.com

FTX

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10) They're assuming 75% annualized BTC volatility, which isn't crazy. If BTC goes up 75% this year, ignoring fees/spreads: Without providing: $1B USD, $1.75B BTC = $2.75B With providing/IL: $1.32 USD, $1.32B BTC = $2.64B So it's paying ~$100m/year to get 20% of FTX's depth

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11) Which means paying $500m/year in impermanent loss to get top tier liquidity for BTC/USD. Maybe $1B/year for all their books combined. That's..... a lot to pay.

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12) Which is just a way of saying that, usually, exchanges don't scale up liquidity by just putting out never-moving scales with their internal capital. Ok, so what's up with Bullish's "illustrative" P&L? (from sec.report/Document/00011)

13) Well, basically, they're: (a) ignoring IL (b) assuming that customers are paying 16bps to trade (c) assuming $1b/day of volume (d) assuming they have $2.5B of USD to provide with (for BTC/USD--and more for others) Wouldn't we all love to have those!

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14) Also, just for fun, here's a chart of competitors' 2023 EV/EBITDA. I love these charts! Though somehow they bury the lede: if I knew every company's 2023 EBITDA, I would go bet on stock and crypto prices, not think of relative exchange valuations.

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15) But anyway, maybe this is all besides the point. Bullish seems to be comparing itself to Bakkt and Coinbase, but maybe that's not really what it is. Maybe Bullish is really another MicroStrategy.

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16) Create a company, put $6B of crypto in it, SPAC it at $9B, and now people have a way to buy crypto with their brokerage accounts at a 50% premium. Maybe they will!

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