Coinbase is the talk of Wall Street on Wednesday, as the largest crypto platform in the U.S. gears up for its public debut on a traditional exchange, arriving via a direct listing rather than a more traditional initial public offering.
The arrival on the public markets of Coinbase COIN, is a big moment in the world of cryptocurrencies. The company was created just over a decade ago with the genesis of bitcoin BTCUSD, -0.06% and today stands at what many in the industry have described as a tipping point.
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There are few ways to secure direct ownership of crypto currencies, outside of buying them directly, a service that Coinbase provides for a fee, and which 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, an 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 cryptocurrencies’ having arrived at the mainstream. “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 valuation for Coinbase as a crypto exchange has gotten too lofty, compared with traditional stock exchanges like Nasdaq Inc. NDAQ, -0.19%, where Coinbase will directly list, and Intercontinental Exchange ICE, -0.18%, 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 as in an IPO.
The following is what you need to know about the Coinbase lising.
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 played a role in the company’s creation.
According to Forbes, Armstrong’s net worth 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?
The Coinbase listing is set to hit the Nasdaq on Wednesday. The precise timing of the list isn’t clear, but Palantir Technologies Inc.’s PLTR, -2.54% direct listing in September saw the first trade of its debut session 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 new money, as a company would in a traditional IPO.
Coinbase is the Nasdaq’s first major direct listing, with Spotify SPOT, -1.39%, Slack Technologies WORK, -0.56% and most recently Palantir all opting to directly list at the NYSE.
Nasdaq assigned Coinbase a reference price of $250 a share on Tuesday evening, which values it at over $65 billion. On Wednesday, Coinbase stock was indicated to open around $350, or 40% above its reference price.
Some bulls are projecting a valuation at $100 billion or better, which would make it bigger than a number of U.S. exchange operators, including ICE, Nasdaq, CME Group CME, +0.44% and Cboe Global Markets CBOE, +1.09%.
David Trainer, CEO of the investment research firm New Constructs, 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 1.5 [times] the combined 2020 revenues of two of the most established exchanges in the marketplace,” namely, NYSE parent ICE and Nasdaq.
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 described it, “not for the faint of heart,” even as she initiated coverage of the exchange at a buy with a price target of $600, before the stock has seen 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 acknowledged that 90% of Coinbase’s revenues are currently derived directly from retail trading, with most if that in the U.S. and trading centered primarily on the two largest cryptocurencies: bitcoin and Ether ETHUSD, +2.41% on the ethereum blockchain.
“So the implication is that Coinbase’s revenues are correlated with the level of activity in cryptocurrency and especially bitcoin and ether.”
Ellis said investors need to have a long-term investment strategy with at least a one-year horizon in bitcoin, which could still go to zero by some bearish accounts, but a three-year outlook is 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’s arrival on the stock market as validation for the nascent crpyto industry.
Alex Mashinsky, head of the crypto lending and trading platform Celsius Network, put it this way in an email to MarketWatch: “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.”
Coinbase, he said, “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 [of] 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 euphoria surrounds bitcoin and cryptos and sees them due for a retrenchment as a result. “Can you find out there anyone with a bearish viewpoint?” he asked. “A resounding no,” he responded.
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, holding about 25% of Class A shares and 14%% of Class B. Marc Andreessen, head of the venture-capital outfit, sits on Coinbase’s board.