What Investors should know about Coinbase listing
Major cryptocurrency exchange Coinbase is set to launch one of the most highly anticipated public offerings of 2021 when it begins trading through a direct listing on the Nasdaq under the ticker COIN on Wednesday. Coinbase will be the first crypto exchange to sell shares to the public, and estimates indicate the listing could fetch an astonishing $100 billion valuation. The confluence of a roaring stock market, a bubbling crypto market, and Coinbase’s healthy balance sheet itself present a good time for the company to go public, analysts believe.
Coinbase has been the talk of Wall Street given its upcoming offering which is no doubt a big deal in the world of crypto. Created just over a decade ago with the genesis of bitcoin, Coinbase is now amid a moment that many in the industry have described as a tipping point.
Coinbase allows investors and ordinary people to directly own cryptocurrencies for a fee, and its users deal primarily in bitcoin and Ethereum.
Coinbase reported last week that its revenue soared 847% in the first quarter to $1.8 billion and that it now has 56 million verified users. Observers believe this is a good time for the company to list and some described the upcoming listing as a watershed moment for the crypto industry, and a reflection of the mainstream evolution and adoption of crypto.
Still, some caution that the implied $100 billion valuations of the crypto marketplace is too lofty compared with traditional stock exchanges like Nasdaq Inc. where the company will directly list, and the Intercontinental Exchange, the parent company of the New York Stock Exchange.
For instance, while some estimate the listing could fetch an astonishing $100 billion valuation, based on Coinbase’s reference price, its valuation may be more in the $65 billion range.
Here’s what investors should know about the coming offering.
What is Coinbase?
- Coinbase ranks No. 3 among the largest digital asset exchanges in the world, according to data site CoinMarketCap.com. That ranking puts it behind Binance, based in Seattle, and Huobi Global, a Seychelles-based cryptocurrency exchange that was founded in China.
- Coinbase was co-founded in 2012 by Brian Armstrong, 38, who runs the platform as chief executive. Fred Ehrsam, a Coinbase director, also helped to create the company.
- There are two classes of Coinbase shares. Armstrong owns 11% of the Class A shares and 22% of the Class B shares, while Ehrsam owns 11.4% of Class A and 9% of Class B.
- Forbes estimates Armstrong’s net worth at $6.5 billion based on his ownership in the company and his wealth is likely to increase if the direct listing goes off successfully.
- Venture-capital firm Andreessen Horowitz, is the largest owner of Coinbase, boasting about 25% of Class A shares and 14%% of Class B. And Marc Andreessen, head of the venture capital outfit, sits on Coinbase’s board.
When will Coinbase go public?
- Coinbase will list on April 14, though it is not clear when trading will begin.
- Coinbase will go public on the Nasdaq under the ticker symbol “COIN” as a direct listing, meaning it is not raising any new money, as a company would under a traditional IPO.
- The listing will be the first major direct listing on the Nasdaq, after Spotify, Slack Technologies, and most recently Palantir Technologies went public through a direct listing on the NYSE.
What is the valuation of Coinbase?
- Coinbase will be likely valued at over $65 billion, following the $250 reference price per share issued to the company by the Nasdaq.
- However, some bulls are projecting a valuation at $100 billion or better, which would make it bigger than several U.S. exchanges, including ICE, Nasdaq, CME Group , and Cboe Global Markets.
- Some analysts believe the $100 billion valuations is ridiculously high and the firm has little to no chance of meeting the future profit expectations of this valuation, even though its revenue surged over the past 12 months. Indeed, the valuation implies that revenue will be 1.5x the combined 2020 revenues of two of the most established exchanges in the marketplace, Nasdaq Inc. and Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, which is troubling.
How risky is Coinbase?
- Coinbase investment is not for the fainthearted. It is a risky investment, but for the risk-takers, the returns could be bigger or better. Analysts are bullish because Coinbase is a market leader in the crypto space.
- Currently, over 90% of Coinbase’s revenues are derived directly from retail trading, with most in the U.S. and trading centered primarily on the two largest cryptos: bitcoin and Ether on the ethereum blockchain. The implication is that Coinbase’s revenues are correlated with the level of activity in the cryptocurrency and especially bitcoin and ether.
- Bitcoin prices have gained attention as it has soared to repeated records, most recently touching a recent peak above $58,000 over the weekend before beginning to give up some gains in recent trade. Last week, bitcoin hit a market value of $1 trillion, and though bitcoin represents about 70% of the total crypto market.
- The biggest risk factor in Coinbase is that it is a bet on an unproven asset class that was created just over a decade ago. Coinbase attempts to make it clear that its fate is linked to the prospects for Bitcoin and Ethereum and the thousands of other alternative coins that have been written into existence. A decline in interest and tough regulations in the U.S. and elsewhere could also wallop the exchange platform.
Should you invest in Coinbase?
- Cryptocurrencies are volatile investments, as we have seen in the recent past. Investors should have a long-term strategy – at least a year-long - in bitcoin, which could still go to zero by some bearish accounts, though a three-year outlook is even better because the crypto complex has tended to operate in three-year cycles of boom and then bust.
- The listing is both a validation of the space and a major PR opportunity for the industry. Coinbase has more users and revenues than many of the largest Wall Street players and is more profitable than any major exchange, and this validation puts most skeptics at a crossroads having to re-evaluate their denial and frustration with the disruption coming at them from all sides.
- But the listing could also prove a new top for the market and put crypto prices under pressure after a precipitous rally in recent days and a fresh record for bitcoin.