The Coinbase [COIN] IPO, due 14 April, may just be the event of the quarter, let alone the year!
With opinions ranging from the stock listing at $230bn to just a fraction of that amount, the cooler heads see a valuation closer to $18.9bn. COIN will list on the NASDAQ Exchange and analysts predict that, “it’s not implausible that the stock could trade closer to 15-20 times forward sales, which would imply a roughly $172-230 billion total market value.”
Coinbase's CEO, Brian Armstrong (pictured above), has succeeded in cementing the company as the go-to crypto currency exchange in the US, if not globally. This makes the IPO that much more significant. As the market already has trusts such as Grayscale Bitcoin Trust [GBTC] and Grayscale Ethereum Trust [ETHE] for investors to trade, COIN will offer yet another opportunity to invest in bitcoin [BTC] as an actual stock trade. This could be huge.
COIN’s price will correlate to the performance of bitcoin, the reigning champion of the crypto currency space. The price of COIN will be directly impacted by volume and volatility.
Volatility and liquidity are two reasons the market cap on Bitcoin exceeded $1.1trn last week.
Bitcoin market cap
Coinbase has already delivered incredible earnings that could send its share price soaring on 14 April. In 2020, Coinbase generated $1.1bn in revenue and $322m in net income. Even more impressive is that the company has already eclipsed those figures in the first quarter of 2021.
Coinbase reported $1.8bn in Q1 revenue, topping its revenue for the entirety of 2020. The company also saw $355bn in trading volume in Q1, surpassing the entire trading volume of 2020. Total assets represent 11.3% of the crypto-asset market share.
Legitimisation of bitcoin and cryptocurrency began late November when institutional demand began to increase. Currently, Coinbase has $223bn in assets including $122bn from institutions, confirming that Coinbase is becoming a trusted name among sophisticated investors.
For instance, the Winklevoss Twins and the Gemini Exchange, are considering raising money and going public in 2022 through a special purpose acquisition company (SPAC). Based in New York, an advantage is the state’s progressive attitude towards Crypto and having an exchange. The official licence required to operate a cryptocurrency exchange in NYC is called a “BitLicense.”
Kraken, a US cryptocurrency exchange, did their most recent private raise in 2019, raising $118m. Now, they are working on getting primed for one final private funding round before applying for an IPO. Kraken’s investors read like a who’s who, including Blockchain Capital, a digital currency group and Hummingbird Venture Tribe Capital, a venture capital partner that teams up with transformative companies. Both investors are significant players in raising money for the blockchain mining space.
Thus far, the effects on the market have been palpable. Listings of new tokens typically yield a 29% return over a five-day average. With the smaller coins the five-day average can be as high as a 91% return.
Potential 5-day average returns on smaller, new coins
With the Coinbase IPO making investing in crypto as easy as investing in the market, we anticipate that after one to two weeks the open interest will soar as it allows for the retail investor to invest in crypto while avoiding the volatility of investing in specific coins.
One caveat, or catch 22 if you will, is the inherent philosophy of crypto’s decentralisation. With COIN becoming so prominent so quickly, it is possible that Coinbase becomes a centralised exchange for all currencies, like the NYSE became the exchange for stocks. Coinbase could even supersede the NYSE as an exchange. Coinbase could become the forever exchange.
Nonetheless, as with all IPOs, we always find allowing some dust to settle before overinvesting or taking on tremendous risk is a prudent trading plan.