Coinbase is the talk of Wall Street, as the largest crypto platform in the U.S. gears up for its public debut on a traditional exchange Wednesday, through a direct listing.
There is no doubt that the public offering of Coinbase
COIN,
is a big deal in the world of crypto. The company was created just over a decade ago with the genesis of bitcoin
BTCUSD,
and is now in the midst of a moment that many in the industry have described as a tipping point.
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There are few ways to get direct ownership of crypto currencies, outside of buying them directly, a service that Coinbase provides for a fee, and what investors appear willing to pay for.
Coinbase, whose users primarily deal in bitcoin and ethereum, 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.
Leeor Shimron, analyst at FundStrat Global Advisors, described the Coinbase listing as seminal. “Coinbase’s direct listing is a watershed moment for the crypto industry.”
Wedbush analyst Dan Ives said the listing is a reflection of the crypto’s mainstream evolution.
“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 in our opinion,” he wrote in a research note Tuesday.
Some caution that the implied valuations for Coinbase as a crypto exchange are too lofty, compared with traditional stock exchanges like Nasdaq Inc.
NDAQ,
where Coinbase will directly list, and Intercontinental Exchange
ICE,
the parent company of the New York Stock Exchange.
In a direct listing, a company floats its shares on a stock exchange, but without hiring banks to underwrite the transaction, like in an IPO.
Here’s what you need to know about the coming offering.
What is Coinbase?
The Silicon Valley crypto exchange 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.
According to Forbes, Armstrong’s networth is currently $6.5 billion based on his ownership in the company and his wealth is likely to increase if the direct listing goes off successfully.
When will Coinbase go public?
Coinbase will list on April 14. The precise timing of the list isn’t clear but Palantir Technologies Inc.’s
PLTR,
direct listing in September saw its first trade after 1:30 p.m. Eastern Time.
Where will it list?
Coinbase is set to go public on the Nasdaq under the ticker symbol “COIN” as a direct listing, meaning it isn’t raising any new money, as a company would under a traditional IPO.
Coinbase is the Nasdaq’s first major direct listing, with Spotify
SPOT,
Slack Technologies
WORK,
and most recently Palantir Technologies
PLTR,
all opting to directly list at the NYSE.
Valuations?
Nasdaq gave Coinbase a reference price of $250 a share on Tuesday evening, which values it at over $65 billion.
Some bulls are projecting a valuation at $100 billion or better, which would make it bigger than a number of U.S. exchanges, including ICE, Nasdaq, CME Group
CME,
and Cboe Global Markets
CBOE,
David Trainer, CEO of New Constructs, an investment research firm, said the crypto platform’s value is ridiculously high. “Even though Coinbase’s revenue surged over the past 12 months, the company has little-to-no-chance of meeting the future profit expectations that are baked into its ridiculously high expected valuation of $100 billion,” he said.
“Coinbase’s expected valuation of $100 billion implies that its revenue will be 1.5x the combined 2020 revenues of two of the most established exchanges in the marketplace, Nasdaq Inc. (NDAQ) and Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange,” he said.
Trainer said that based on his calculation, Coinbase’s valuation should be closer to $18.9 billion—an 81% decrease from the $100 billion expected valuation.
‘Not for the faint of heart’
MoffettNathanson analyst Lisa Ellis explained to MarketWatch why the offering is, as she describes it “not for the faint of heart,” but why she initiated coverage of the exchange at a buy with a price-target of $600, even before it sees its first trade on the Nasdaq.
“I’m super super bullish on Coinbase…because you get the sense that they are a market leader in the space and crypto agnostic,” she said.
That said, she acknowledges that currently 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
ETHUSD,
on the ethereum blockchain.
“So the implications is that Coinbase’s revenues are correlated with the level of activity in cryto currency and especially bitcoin and ether.”
Ellis says investors need to have at least a one-year long-term investment strategy in bitcoin, which could still go to zero by some bearish accounts, but a three-year outlook is even better, because the crypto complex has tended to operate in three-year cycles of boom and then bust.
Validation for crypto or a top?
Some bulls see Coinbase as validation for the nascent crpyto industry.
Alex Mashinsky, head of crypto-lending and trading platform Celsius Network, put it this way:
“We look at the Coinbase listing as an additional validation of the space, and a major PR opportunity for the entire industry to shine as the future of finance,” he told MarketWatch via email.
“Coinbase has more users and more 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.”
Others suggest that it may 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.
Yves Lamoureux, the president of Montreal-based macroeconomic research firm Lamoureux & Co., told MarketWatch that he is fearful that too much euphoria surrounds bitcoin and crypto and sees it due for a retrenchment as a result. “Can you find out-there anyone with a bearish viewpoint?” he asked. “A resounding no,” said Lamoureux.
Is Coinbase the largest crypto exchange?
Coinbase is the second-largest crypto platform, but the largest in the U.S., by volume. The title of largest goes to Binance, which sees $47 billion in crypto trading volume in a 24-hour period, according to CoinMarketCap.com.
Who else owns Coinbase?
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.
Other facts
For those aiming for an even deeper dive into Coinbase, check out MarketWatch’s 5 things to know about the company.
