NEW DELHI: Wall Street is still waiting on the first trade for Coinbase, as the digital currency exchange makes its highly-anticipated debut on the stock market.
Coinbase Global Inc is making its initial public offering of stock Wednesday with cryptocurrency chatter seemingly everywhere, even at the US Federal Reserve. Digital currencies are being incorporated into business plans and accepted by major corporations like Tesla, PayPal and Visa.
“The Coinbase IPO is potentially a watershed event for the crypto industry and will be something the Street will be laser focused on to gauge investor appetite,” Wedbush analyst Daniel Ives wrote this week.
There were 43 million verified Coinbase users in 2020, with 2.8 million making transactions monthly. Its revenue more than doubled to $1.14 billion last year and the company swung to a profit of $322.3 million after losing tens of millions in 2019. It recently estimated that revenue rose to $1.8 billion and net income increased to between $730 million and $800 million in the first quarter of 2021.
Coinbase’s fortunes are closely tied to Bitcoin, the biggest digital currency, and Etherium, another popular cryptocurrency. That relationship has been very positive lately: Bitcoin soared above $63,000 on Tuesday after starting the year around $29,000.
Coinbase earns 0.5% of the value of every transaction that goes through its system. So if someone buys $100 in Bitcoin, Coinbase earns 50 cents. If Bitcoin or Etherium prices drop, the commissions Coinbase earns drop as well, giving it some exposure to the digital currencies’ rise and fall.
In some ways, Coinbase may be dealing with seemingly exotic assets but it’s business model is particularly vanilla.
An organization that deals in cryptocurrency, which is often used as away around institutional monetary systems and control, is an odd fit for a publicly traded company, which must file quarterly reports with regulators.
However, when Coinbase filed papers with US regulators this year to go public, it said it would do so through a direct listing. That means it has avoided the typical agreements with big banks that would typically buy thousands of shares and promote them.
A direct listing allows insiders and early investors to convert their stakes in the company into publicly traded stock, which will hit the market Wednesday with no set price, as is the norm when an IPO is handled by big banks.
That could mean wild price swings when the stock starts trading. This week, Nasdaq gave the company’s stock a $250 reference price. That is unlikely to stick.
Other recent direct listings include the music streaming service Spotify in 2018, the messaging service Slack in 2019 and the data-mining company Palantir Technologies in 2020.
Shares of Coinbase, which will be traded on the Nasdaq under the ticker ‘COIN,’ will attract investors who want to get into the cryptocurrency space in addition to, or without buying any coins at all, said Lule Demmissie, president of Ally Invest.
“It could also be a less volatile security than the coins themselves,” Demmissie says.
Some Wall Street analysts project that Coinbase Global Inc could be valued at $100 billion, based on private transactions of its shares.
That would make it one of the top 100 biggest publicly traded US companies and far larger than Nasdaq Inc, which runs the Nasdaq Stock Market, and Intercontinental Exchange, which owns the New York Stock Exchange.
Still, not everyone is buying into the Coinbase hype. David Trainer, CEO of investment research firm New Constructs, said Coinbase has “little-to-no-chance of meeting the future profit expectations that are baked into its ridiculously high valuation.”
Trainer last week put a valuation on Coinbase closer to $18.9 billion, arguing it will face more competition as the cryptocurrency market matures.
However Ives, of Wedbush, sees Coinbase as a window into the future.
“Coinbase is a foundational piece of the crypto ecosystem and is a barometer for the growing mainstream adoption of Bitcoin and crypto for the coming years,” Ives said.