The Coinbase [COIN] IPO is set to launch on the Nasdaq later today (14 April), with some experts valuing it as high as $100bn.
As a direct listing — the first major one in the Nasdaq’s history — the Coinbase IPO won’t raise any additional capital, according to its S-1 filing. Owners of Class A common stock will be entitled to one vote per share, while owners of the Class B stock will receive 20 votes per share.
How could the Coinbase IPO affect its share price?
Coinbase’s fortunes thrived last year as investors bet big on bitcoin. In 2020, Coinbase made $1.2bn in net revenue and an annual profit of $322m — a first for the company.
In a sign of how red hot the cryptocurrency market is right now, Coinbase’s first quarter of 2021 has already smashed those numbers. Total revenue came in at $1.8bn for a net income of between $730m to $800m. The exchange’s monthly transacting users (MTUs) for the quarter totalled 6.1 million, with a trading volume of $335bn — good news for the exchange, as it generates revenue from transactions.
Coinbase's Q1 total revenue
Ahead of Coinbase’s IPO, shares were trading hands at between $350 and $375 on the Nasdaq private market, which would value the company at circa $100m, according to Bloomberg.
DA Davidson has put a $440 price target on Coinbase’s share price more than double its initial valuation, after Coinbase released first quarter results, according to the Financial Times. The broker believes Coinbase will grow by targeting institutional buyers and sellers.
Why should investors care about the Coinbase IPO?
Coinbase’s IPO will allow investors to pick up shares that offer exposure to the cryptocurrency market via equity trading. This could prove a more stable trading experience than the boom and bust cycles of the cryptocurrencies themselves.
“For a crypto investor that also buys stocks, it has the ability to diversify risks as there is a very profitable exchange platform that trades on another venue (stock exchange) whose flows of buyers and sellers can be less correlated than many crypto prices,” Greg Foss, CFO for Validus Power Corp, told Bloomberg.
"[Coinbase] has the ability to diversify risks as there is a very profitable exchange platform that trades on another venue" - Greg Foss, Validus Power Corp
Another boon for investors is that buying into an exchange like Coinbase allows them to hedge bets on the current proliferation of cryptocurrency tokens. Whichever cryptocurrency comes out on top, Coinbase earns from trading revenue, not the price of the actual currency.
This could help minimise the risk of either backing the wrong currency, or being exposed to whipsaw price movements. Of course, any overall slowdown in trading volumes would have a knock on effect on Coinbase’s revenue and then price.
“Coinbase stock will indirectly speculate on the crypto market and similarly, crypto traders who own Coinbase stocks will have a vested interest in the success of the company," James Anderson, CEO of RioDeFi, told Market Insider.
Coinbase IPO sees crypto enter the mainstream
BeInCrypto’s Julia Marges suggests that Coinbase’s IPO will see it go public at a time when several major financial institutions are investing in bitcoin, offering reassurance over the legitimacy of these currencies. After all, Morgan Stanley and Goldman Sachs are both reported to be offering bitcoin exposure to their private wealth management clients.
“The move made by Coinbase is also being viewed as the first major step in establishing a legal and reliable bridge between the decentralized and traditional financial markets that can attract a slew of investors who have been waiting for such a development as reassurance in the viability of the crypto market,” wrote Marges.
"[The Coinbase IPO is] being viewed as the first major step in establishing a legal and reliable bridge between the decentralized and traditional financial markets" - Julia Marges, BeInCrypto
Bitcoin’s market cap crossed $1trn in the first quarter of 2021, which Coindesk suggests in its Q1 review of crypto trends, “is significant because many institutional investors won’t consider an asset group until it’s a sufficient size.”
However, a Financial Times report points out that Coinbase could get embroiled in a race to the bottom as competitors slash commission fees to steal market share. Then there’s trading app Robinhood, which is reportedly working on a crypto wallet.
Either way, cryptocurrency is now entering the financial mainstream. For investors, the Coinbase IPO could offer a way into this market without stumping up big bucks for the underlying currency. However, as with any IPO, it could be worth waiting until the dust settles before investing.