Widely expected to become worth more than Goldman Sachs overnight, the floating of Coinbase on the Nasdaq is significant for the future of cryptocurrencies.
ADVERTISEMENTIt is being heralded as one of the most significant launches of the year on Wall Street. And given the news this week that cryptocurrencies are now worth more than Apple when their value is combined, the arrival of Coinbase on the Nasdaq stock exchange is setting investors abuzz.
Coinbase is making its initial public offering (IPO) of stock on Wednesday with cryptocurrency chatter seemingly everywhere, even at the US Federal Reserve, the central banking system in the States.
It is being incorporated into business plans, accepted by major corporations like Tesla, PayPal and Visa, and is now being widely tipped to be worth more than Goldman Sachs by the end of trading.
So, what is it and why is it significant?
What is Coinbase?
Coinbase is the largest cryptocurrency exchange platform in the US and one of the world's largest overall.
It has widely gained a reputation as one of the safest and most secure exchanges to use due to its close co-operation with US regulators.
There were 43 million verified Coinbase users in 2020, with 2.8 million making transactions monthly.
Its revenue more than doubled to $1.14 billion (€952 million) last year and the company swung to a profit of $322.3 million (€269 million) after losing tens of millions in 2019.
Shares of Coinbase, which will be traded on the Nasdaq under the ticker "COIN," are widely expected to attract investors who want to get into the cryptocurrency market in addition to, or without, buying any coins at all.
Some Wall Street analysts project that Coinbase Global Inc. could be valued at $100 billion (€83.5 billion), based on private transactions of its shares. This week, Nasdaq gave the company a reference price of $250 (€209) a share.
This was revised upwards on Wednesday in the lead-up to the launch to $350 (€292) a share.
That would make it one of the top 100 biggest publicly traded US companies, one that will be far larger than the New York Stock Exchange or Nasdaq.
How does it work?
Coinbase's fortunes are closely tied to Bitcoin, the biggest virtual currency, and Etherium, another popular crypto. That relationship has been very positive lately: Bitcoin soared above $64,000 (€53,500) on Tuesday after starting the year around $29,000 (€24,200).
Coinbase earns 0.5 per cent of the value of every transaction that goes through its system. So if someone buys $100 (€83.50) in Bitcoin, Coinbase earns $0.50 (€0.42).
If Bitcoin or Etherium prices drop, the commissions Coinbase earns drop as well, giving it some exposure to the digital currencies' rise and fall.
In some ways, Coinbase may be dealing with seemingly exotic assets but its business model is particularly vanilla.
An organization that deals in cryptocurrency, which is often used as away around institutional monetary systems and control, is an odd fit for a publicly-traded company, which must file quarterly reports with regulators.
What does its IPO mean for cryptocurrencies?
"The Coinbase IPO is potentially a watershed event for the crypto industry and will be something the Street will be laser-focused on to gauge investor appetite," Daniel Ives, an analyst at Wedbush, wrote earlier this week.
ADVERTISEMENT"Coinbase is a foundational piece of the crypto ecosystem and is a barometer for the growing mainstream adoption of Bitcoin and crypto for the coming years," he added.
Expectations about the successful floating of Coinbase on the Nasdaq stock exchange went into overdrive last week when the company reported estimates of its first-quarter results, including about $1.8 billion (€1.5 billion) in revenue and net income between $730 million (€610 million) and $800 million (€668 million).
While the launch of Coinbase's IPO is likely to push cryptocurrencies further into the financial mainstream, not everyone is convinced of the platform's hype.
David Trainer, CEO of investment research firm New Constructs, for instance, believes Coinbase has "little-to-no-chance of meeting the future profit expectations that are baked into its ridiculously high valuation".
