With the growing popularity of cryptocurrencies, attention has inevitably shifted towards the exchanges that they trade on. The upcoming Coinbase direct listing, is something that investors have been looking forward to for a while.
With big things expected as the platform gets set for its listing, what will the initial Coinbase share price trading range be?
Anticipation high for Coinbase listing
The listing was initially scheduled for March, however Coinbase fell foul of the US Securities and Exchange Commission (SEC), as well as reaching a $6.5m settlement with the Commodity Futures Trading Commission (CFTC), over claims it was reporting false information over its transactions.
No new shares will be issued at the Coinbase listing, with shares made available from existing investors looking to cash in some of their seed stakes, and take some profits, with the listing reference set at $250 a share valuing the company at $65.3bn. It's important to note that this is not an Initial Public Offering, but an S-1 listing, also know as a Direct Listing.
In its most recent quarterly update, Coinbase announced that it expects to make between $730m to $800m in Q1. The company has 56 million verified users, and its latest results showed the company turned over $1.8bn in the first three months of its fiscal year. This is more than it made over the whole of 2020, when it generated revenue of $1.3bn.
In terms of trading volumes, the last quarter saw turnover of $335bn, with assets on its platform rising to $223bn, with $122bn from what they called “institutional” users. Perhaps surprisingly, Coinbase didn’t provide any guidance, citing the “inherent unpredictability” of its business.
Coinbase outlined three separate scenarios for the year, with the most optimistic predicting around 7 million monthly users, which is slightly higher from its current 6.1 million monthly transacting users. There will be costs associated with the Coinbase IPO as a result of the direct listing, with the company expecting to incur expenses of $35m in Q2.
Cryptocurrencies heading for the mainstream?
With bitcoin already having more than doubled in the last six months and cryptocurrencies becoming more popular with investors, it can certainly be argued that crypto has become more mainstream in the last 12 months.
Tesla CEO Elon Musk has bought bitcoin and allowed customers to pay for Tesla cars with bitcoin, and the likes of Morgan Stanley now offer access to crypto markets to its wealthier clients.
It’s not just bitcoin that is proving popular. There are a whole host of other cryptocurrencies that are becoming more tradeable, with the likes of ethereum, litecoin and stellar lumens hitting record highs this month.
Like any other investment proposition, there is a direct relationship between reward and risk. “One view of the Coinbase business is that it’s a leveraged exposure to the most volatile markets in the world. Crypto currency trading volumes increase with the price of the coins, as do transaction costs, and therefore Coinbase profits. If crypto prices come back to earth, the impact on Coinbase’s share price could be severe.” said Michael McCarthy, CMC’s chief market strategist.
Will the Coinbase lsiting prove popular with retail investors? There’s little doubt that demand and interest is set to be high. The bigger question is whether any valuation is sustainable, particularly given how many governments aren’t particularly enamoured by cryptocurrencies, which means future regulation is likely to be a clear and present danger, and a probable headwind.
Where will the Coinbase share price land?