Picks And Shovels Strategy

A discussion about the "picks and shovels" investment strategy, using Coinbase's IPO as a case study for investing in crypto infrastructure versus cryptocurrencies directly.

The Picks and Shovels Strategy

• During any "gold rush" or new frontier, it's difficult to pick winners directly
• Instead of trying to find gold, sell tools (picks and shovels) to miners
• This strategy is considered more foolproof than betting on individual winners
• Coinbase represents this strategy in crypto - providing exchange infrastructure rather than being a currency

Coinbase vs Bitcoin Case Study

• Coinbase went public through direct listing
• Initial details:
  • 114 million shares for sale
  • 40% up on day one
  • $110 billion implied market cap
• Historical context:
  • Seed round in September 2012
  • Raised $600,000 initially
  • Bitcoin was trading around $10-11 at the time

Early Crypto Investment Approaches

• Andreessen Horowitz's early strategy (2012):
  • Didn't invest in crypto companies initially
  • Chose to buy bitcoin directly instead
  • Later changed their fund structure to accommodate crypto assets
  • Eventually invested in Coinbase and other projects

Investment Psychology

• Key challenge: Holding through volatility
  • Bitcoin went from $10 to $63,000
  • Most people couldn't hold through the entire period
• Illiquidity as a feature:
  • Coinbase investors couldn't sell until IPO
  • Forced holding pattern led to better returns
  • Similar pattern repeats across different industries over time (real estate, oil, etc.)