The world’s largest cryptocurrency exchange is going public.
Coinbase's impact on crypto and its stunning $100+ billion valuation — which would be the largest market entrance since Facebook’s IPO in 2012 — set it up as one of the most highly-anticipated offerings of 2021.
Coinbase 101: Coinbase users can buy, trade, sell and store 50 cryptocurrencies via mobile and web apps. The exchange has 43 million verified users — up from 35 million users in July 2020 — and more than 7,000 institutional traders in over 100 countries.
Competition: Crypto exchanges like Coinbase, Binance, or Gemini aren’t federally insured by the Securities Investor Protection Corporation (SIPC), but Coinbase insures losses from theft or hacks. Brian Armstrong, a former Airbnb engineer, co-founded Coinbase with Fred Ehrsam, a former Goldman Sachs trader.
The background: Coinbase’s direct listing arrives amid a surge of popularity in Bitcoin and cryptocurrencies. Bitcoin is up about 65 percent since the New Year — and up 450 percent in the last year — which has drawn millions of new crypto traders. The total market cap of crypto assets has soared from $500 million in 2012 to $782 billion in 2020.
Bull season is here: It’s estimated that globally about 100 million people own Bitcoin and about 33 million Americans own some form of crypto.
The process: Instead of an IPO, Coinbase will directly list its shares on the Nasdaq. With an IPO, a company raises capital by creating new shares, underwriting them, and selling them to the public. In a direct listing — also known as a direct public offering — a company raises capital by selling only existing, outstanding shares to the public with no underwriters involved.
The numbers: 2020 was great for Coinbase. The San Francisco-based company posted a $322 million profit in 2020 and has been profitable since 2016, according to its SEC filing. Coinbase also boosted revenues by roughly 184 percent, from $483 million in 2019 to $1.14 billion in 2020. Since its founding in 2012, Coinbase customers have traded over $456 billion and stored over $90 billion worth of assets on the platform.
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Analyst reactions: D.A. Davidson market analyst Gil Luria said Coinbase’s direct listing represents the "Amazon moment for crypto." The firm believes that Coinbase’s public offering will shift "a large curiosity to becoming the future path for much of the financial system."
Market concerns: Seeking Alpha’s Brent Fulfer recommended caution on Coinbase, noting that its valuation seems steep “considering that it values Coinbase at over 76x revenue during a very volatile period in the market.” Analysts from the Motley Fool were also cool to the idea of jumping on Coinbase’s direct offering.
Massive milestone for crypto: Regardless of your view on Coinbase’s prospects, its direct public offering is a historic moment for cryptocurrencies. Coinbase will be the first major crypto exchange to be publicly traded, which will likely fuel the creation of new crypto traders. It’ll also offer more traditional investors an avenue to crypto without buying the actual assets, further normalizing crypto around the world.