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What does Coinbase’s IPO mean for cryptocurrencies in the longer-term?

Coinbase’s [COIN] IPO has been this month’s unavoidable event. Analysts, commentators and industry veterans debated whether cryptocurrencies had now entered the investment mainstream. The Wall Street Journal (WSJ) even went as far as describing the debut — and the $85bn valuation the cryptocurrency exchange snagged — as a “watershed moment”.

Trading under the ticker COIN, the cryptocurrency exchange started trading at $381, rising to a high of $429.54, before closing at $328.28. Having closed down on the day, there’s an argument that the debut underwhelmed slightly.

That could potentially be due to the hype surrounding it. As the WSJ points out, tech companies usually go public before they make a profit. Coinbase was already profitable when it went public, and the current share price is more a reflection of investor sentiment.

“I think it’s probably a good company, but not a good stock at anywhere near the current levels. The pricing is a function of investor sentiment and is not related to the underlying economics of the business or the basic laws of competition,” New Constructs’ David Trainer told the WSJ.

"I think it’s probably a good company, but not a good stock at anywhere near the current levels." - David Trainer, New Constructs

 

Has Coinbase's IPO affected cryptocurrency prices?

Going into the debut, bitcoin was approaching an all-time high of $65,000 and a market cap north of $1trn. However — and in a demonstration of how volatile cryptocurrencies can be — bitcoin has dropped 10% since 15 April, trading at circa $54,628 (as of 19 April’s close), while Ethereum is down over 10% and Ripple has suffered a 25% loss.

While the first weekend following the Coinbase IPO saw a huge selloff in cryptocurrencies, the timing appears more fluke than anything. Bitcoin, Ethereum and Ripple all dropped as reports surfaced that the US treasury would censure financial institutions found to have enabled money laundering through digital currencies. This was compounded by the Turkish central bank saying it would ban cryptocurrency payments.

Some sellers may have held off unloading digital currencies until after the Coinbase IPO — “nobody wants to be selling in front of the Coinbase offering,” Fundstrat founder Tom Lee had told CNBC ahead of the event.

Coinbase’s share price experienced choppy trading on Monday, however nothing as pronounced as the selloff in the cryptocurrencies mentioned. This could point to resilience for traders — after all, a position on Coinbase could offer exposure to digital currencies, minus the volatility. However, for the moment there is not enough data to draw a meaningful relationship.

 

Where next?

Right now, the dip in the currencies could represent a buying opportunity for those with enough cash to afford bitcoin, providing the selloff doesn’t intensify. 

“Bitcoin is stuck in the $50,000-$60,000 twilight zone. Above $60,000 it’s the retail FOMO, or Fear Of Missing Out frenzy. Below $50,000 lay the institutional dip buyers,” David Lifchitz, CIO at ExoAlpha told Coindesk’s Daniel Cawrey.

"Bitcoin is stuck in the $50,000-$60,000 twilight zone." - David Lichitz, ExoAlpha CIO

Longer-term, the debut could open the door to more retail investors in cryptocurrencies. In March, Morgan Stanley became the first US bank to offer its wealthier clients access to bitcoin through three funds. To be eligible, clients need to have $2m in assets and “an aggressive risk tolerance”, according to an internal memo.

A contrarian view is that the arrival of cryptocurrencies into the trading mainstream suggests they have matured and that the era of high growth is coming to an end.

Talking to Bloomberg, Peter Atwater of Financial Insights draws the analogy of gold miners and gold to describe buying shares in exchanges (like Coinbase) rather than the currencies themselves.

“When picks and shovels are being touted as your best bet — rather than the gold mine itself — the rush is past.”

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