What You Need To Know About The Coinbase IPO
Isadora Teich wrote this article
So far, 2021 has been a landmark year. In the midst of incredible instability and uncertainly, more and more intriguing companies are becoming publicly traded entities.
The next big company to go public is Coinbase, the first major cryptocurrency exchange platform. It was predicted to surpass the 100 billion mark in terms of valuation, and it certainly lived up to the hype at 85.8 billion by the end of opening day.
The NY Times even went as far as proclaiming the IPO as “Crypocurrency’s Coming-Out Party.”
Here is everything you need to know.
A History Of Cryptocurrency in 60 Seconds
More than a decade ago, Bitcoin and cryptocurrency, in general, had a pretty dicey reputation. Most people had never heard of it at all. Many of Bitcoin’s early users were trading the cryptocurrency while using the now-defunct site Silk Road.
Silk Road was a platform where users could anonymously sell and purchase illegal items. It was actually shut down by the FBI in 2013.
Today, things are very different.
Barron’s reports that more than two dozen major corporations have a portion of their assets in cryptocurrency. Business Intelligence company MicroStrategy Incorporated is the current leader, with over 90,000 Bitcoins purchased. You likely saw Tesla making headlines for its own massive Bitcoin purchases.
A lot of complicated and fascinating things are happening, including Crypto ETFs.
Even major traditional financial players like JP Morgan are trying to figure out what cryptocurrency’s place in the financial world and their own business is.
Currently, there are a ton of different cryptocurrencies, including Bitcoin, Ethereum, Ontology, Litecoin, DogeCoin and Chainlink.
Why Is Cryptocurrency A Big Deal?
The whole initial point of cryptocurrency was that it is digital money that exists without government or institutional oversight.
It is not tied to the value of gold or the whims of various governments or banks.
For example, the US dollar was initially tied to the value of gold, but it has not been since 1973. Currently, the US dollar is partially what economists call Fiat money. Fiat money only has worth because the government enforces it.
The US dollar is somewhat like a collective hallucination we all are experiencing, under the watchful eyes of institutions that have tracked every cup of coffee we have bought since birth. In addition, traditional money management through institutions is plagued by fees.
Have you ever overdrawn by $2 and been charged $50 for that?
Or have you ever wondered why companies charge you so much to access your own money abroad?
It was the dream of the early pioneers of Bitcoin to dodge fees and oversight.
Some Big Problems
However, this initial anarchistic dream of complete financial independence for human beings from institutions encountered some big roadblocks.
For one, especially in the early days, you basically needed to be a computer programmer to find, buy, store, and trade Bitcoins.
When it comes to acquiring crypto, you have two options: mining or using an exchange. You need a lot of power and tech know-how to mine them. In addition, many early attempts at crypto exchanges were short-lived, fairly underground, poorly managed, and plagued with issues.
Keep in mind that, currently, a single Bitcoin is worth over $60,000.
So, even with the right tools or training, the majority of people on earth could not access a whole entire Bitcoin.
Bottom line: If something is inaccessible to the majority of people, it is unlikely to truly be revolutionary. However, Coinbase is the answer to many of these issues.
What Is Coinbase And What Can You Do With It?
Coinbase is the first major cryptocurrency exchange platform. It makes buying, investing in, and using a wide variety of cryptocurrencies basically as simple as logging into Amazon and making purchases.
While you can not access every cryptocurrency that exists through the platform, you can access the major ones; like Bitcoin and Ethereum, for a small fee.
Coinbase also gives users the option to buy portions of digital currencies. So, if you don’t have a cool $60,000 laying around, you can still get involved in Bitcoin.
With Coinbase, users can track investments and keep a digital wallet right from their computer or an app on their mobile device.
Here is what Coinbase says about themselves:
Coinbase is a secure online platform for buying, selling, transferring, and storing digital currency. Our mission is to create an open financial system for the world and to be the leading global brand for helping people convert digital currency into and out of their local currency.
Coinbase was founded in July 2011 by former Airbnb engineer Brian Armstrong. Initially, it was funded by Y Combinator.
In 2012, co-founder Fred Ehrsam, a former Goldman Sachs trader, joined the company. Shortly after Coinbase launched the services to buy, sell, and store Bitcoin.
Today, Coinbase operates in over 30 countries and has four main lines of business.
Buzz About The Coinbase IPO
Coinbase entered the market under the ticker COIN. Experts speculated it would be a huge debut, as this week Bitcoin hit all-time highs.
Analysts predicted a market capitalization ranging from $19 billion to $230 billion for Coinbase.
Many analysts are estimating that about $100 billion is the sweet spot.
1/ Coinbase’s IPO is a big moment for Bitcoin.
Last week Coinbase rocked the mainstream financial world when they published their higher than expected Q1 2021 financials. The biggest shock was the $1.8B in revenue, which makes the $100B valuation quite sensible.
— Dan Held (@danheld) April 13, 2021
With shares of the IPO closing at a whopping $328.28 per share, it would seem they were right. At one point, Coinbase’ market cap did exceed 100 billion, but it slipped slightly by day’s end, closing at 85.8 billion.
This all adds up. Julie Chariell, senior analyst at Bloomberg Intelligence says that based on figures provided by the company, Coinbase made about $3 billion of revenue in 2020; making a $100 billion market cap more than possible.
“The top 12 fintech firms to go public in the last six months have had price-to-sales ratios of 36 times… Multiplying that by 2020 revenue gets you… easily over $100 billion in market cap.”
This was a highly contested topic leading up to the opening.
Market researchers at New Construct say that this valuation implies that Coinbase would make more than the NASDAQ and New York Stock Exchange combined.
“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.”
New Construct also makes the point that Coinbase earns most of its revenue from transaction fees. In the future, if crypto really takes off, it’s likely that other exchanges will offer lower fees or no fees to compete with Coinbase, potentially making them obsolete.
Which is a fair point.
What This Means For Fintech
Valuation aside, the significance of the Coinbase IPO’s success lays in being a historic turning point for digital currency.
It’s evolved from being regarded with a pretty serious side-eye, to analysts predicting cryptocurrency will become highly competitive in the global market ahead.
It cannot be denied that as corporations continue to legitimize crypto, and more and more everyday people can access it and participate, its potential grows exponentially.
Fintech itself is one of the hottest areas of innovation globally, with many firms going public since 2020. This year alone, half a dozen European Fintech startups have hit $1 billion valuations and Fintech Startup Numida is taking East Africa by storm.
Regardless of how Coinbase performs as a publicly traded stock, it is likely that in the future we will see a variety of major cryptocurrency exchange platforms enter the arena.
While right now, cryptocurrency is far from completely dismantling the world of finance (and it may never do that), it is definitely a powerful up-and-comer in global finance.
That the Coinbase IPO had such lucrative results next to other recent IPOs for tech companies like Airbnb, Door Dash says a lot about this industry’s potential. Relative to the other companies in the IPO pipeline, Coinbase’s recent growth is unparalleled, surging nine-fold since last year.
Cryptocurrency has been a controversial topic since going mainstream. Some people think it will change everything, and other people think it is a fad that will ultimately fizzle out. Either way, Coinbase’ successful IPO should go a long way to silence any naysayers.
What do you think?
Talk to me.
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