March 28, 2024

Nasdaq adds Coinbase shares, how will this affect the crypto market?

Nasdaq adds Coinbase shares, how will this affect the crypto market?

Cryptocurrency exchange Coinbase shares are officially listedstarted trading on the Nasdaq trading platform. The debut of the Coinbase exchange on the stock market was associated with high volatility inherent in the cryptocurrency space.

COIN began trading at $ 380 andrallied quickly to a local high of $ 429.54. At this point, the market reversed and the stock went into a free fall until it hit a low of around $ 310. The last deals before the close of the markets were made at a price of $ 328.28, that is, 14% below the opening. Today, April 15, Coinbase's share price has stabilized around $ 345.

Amid the increased volatility of COIN shares, the largest cryptocurrency exchange Binance, which previously announced the listing of tokenized shares of Coinbase, announced a delay in the start of trading.

“Binance Delays Coinbase Listing For TimeStock Token (COIN) due to market volatility. The TSLA / BUSD trading pair is unaffected. We will make a separate announcement when the COIN / BUSD pair is open for trading. ", - said in a message from Binance.

Coinbase Ecosystem

Coinbase is the largest American crypto exchange and one of the leading ones in the world.

The site has been operating since 2012 and for thishas attracted over $847 million in investments. According to a public report for the first quarter of 2021, the exchange has approximately 56 million users, 7,000 institutional clients and 115,000 ecosystem partners in more than 100 countries. It is worth noting that in the summer of 2019 the number of Coinbase users was 30 million people, in the summer of 2020 - 35 million, and in December last year this figure grew to 43 million.

The top 55 are currently trading on Coinbase.cryptocurrencies, and the volume of the site’s assets exceeds $223 billion, which is 11.3% of the entire crypto market. Of this, $122 billion are institutional investments in cryptocurrencies.

Coinbase is not just a crypto exchange, but an entire ecosystem. The company is actively developing several other business lines in addition to its exchange services. Among them:

  • Coinbase Pro is an exchange for professional traders;
  • Coinbase Prime is a service for institutional investors;
  • Coinbase Ventures is a venture capital fund that invests in over 100 blockchain startups;
  • Coinbase Custody is a custodian service whose users have access to over 100 crypto assets;
  • Coinbase Commerce is a payment infrastructure that allows retailers to accept payments in cryptocurrency.
  • Coinbase Card - Visa debit cards that allow you to pay with cryptocurrencies using a simple bank card;
  • USD Coin (USDC) is a stablecoin pegged to the dollar at a 1: 1 ratio.

Coinbase does not hide its ambitions to become the mostthe main exchange of the crypto sector. However, to achieve this goal, the company needs more than just venture capital investments - it also requires millions of retail investors trading its shares.

Coinbase's plans to go public on the stock exchange have been announced.known a few years ago, in December 2017. Last July, rumors emerged that the site would go public through a direct listing rather than an IPO, and at the end of December 2020, the company officially announced a direct listing of its securities on Nasdaq.

Coinbase Quarterly Report

Coinbase is a private company and is not required to report its profits. But before listing on the stock exchange, it published a quarterly report highlighting its financial progress.

According to it, in the first quarter of 2021, revenueCoinbase amounted to $1.8 billion, compared to $1.3 billion for the whole of last year. The company's net profit ranged from $730 million to $800 million. It is worth noting that for the entire last year, Coinbase's profit was estimated at $322 million, and in 2019 the company suffered a loss of $30 million. Since its launch, total income has exceeded $4 billion. In this case, 85.8% of Coinbase's revenue comes from transaction fees.

As for trading volumes, in the first quarter of this year it amounted to $335 billion, and for the entire 2020 - $193 billion.

Regarding revenue distribution:

  • 21% goes to “investments in technology and development”,
  • 22% - for administrative expenses,
  • 12% - for marketing.

Coinbase intends to increase those spending this year.

The majority of revenue (75.6%) comes from American customers. But it’s also worth noting that over the past two years, Coinbase’s growth in other countries has outpaced that of the US site.

The trading platform is used monthly by about6.1 million people. Coinbase expects this figure to range from 4 to 7 million this year, depending on the capitalization of the crypto market and the volatility of cryptocurrencies.

The company also expects that “the customer basewill grow with the ecosystem it serves ”, and its ultimate goal is to bring crypto services to anyone with a smartphone, which corresponds to an audience of 3.5 billion people.

Coinbase's financial report marked an important milestone in the development of the crypto market. Firstly, it becomes transparent, and secondly, the company was able to show excellent profits in just two years.

Coinbase Direct Listing on Nasdaq

Most often, companies enter the stock exchange throughtraditional IPO - Initial Public Offering, "initial public offering". In this case, underwriting banks help companies: they negotiate with the regulator and the exchange, manage the process, and in return buy back shares from the company and resell them to investors for a commission.

Coinbase has chosen a different model - it is enteringexchange through direct listing (Direct Public Offering, DPO). But with a DPO, the company's shares have already been sold to the original investors - and now those investors will resell Coinbase securities on the open market. A DPO is faster, simpler and cheaper than an IPO: there is no need to spend money on preparation for listing and pay large commissions to investment banks. With a DPO, the company does not raise new funds, but it allows investors to get their investments back. Direct listings are becoming increasingly popular, with well-known companies such as Spotify Technology, Slack and Palantir Technologies recently going public this way.

Coinbase shares will be traded on the USNasdaq platform under the ticker COIN. According to Coinbase's application, 255 million securities will be issued to the market. For Russian investors, securities trading will be available through the St. Petersburg Stock Exchange.

Coinbase shares are issued in two classes withdifferent voting rights. Class A securities with one vote per share will be available to a wide range of investors. Class B shares, with 20 votes, are owned by company executives and early investors. In total they have 60.5% of the votes. This may have implications down the line if the views of management and minority shareholders do not coincide.

The listing was originally scheduled forMarch, but it had to be postponed. Coinbase recently agreed to pay a $6.5 million fine to settle claims by the Commodity Futures Trading Commission (CFTC) that it misreported its trading volumes. Coinbase neither admitted nor denied the regulator's allegations, but agreed to pay a fine.

After entering the exchange, Coinbase will become publiccompany - any investor can buy its securities. The site will also be required to report income and losses and comply with all legal requirements, including user identification. However, Coinbase is already doing the latter.

How much is Coinbase priced?

It's difficult to say exactly how much Coinbase stock will be worth.

Yesterday, April 13, Nasdaq set the initial price for Coinbase shares at $250, which corresponds to the company's capitalization of $64.2 billion.

At the same time, at the end of December 2020Research company Messari valued Coinbase at $28 billion. But according to Bloomberg, Coinbase shares traded between $350 and $375 at a closed auction on the Nasdaq Private Market. According to this estimate, the company's capitalization ranges from $90 to $100 billion.

In any case, this is an extraordinary assessment forexchanges of any type. For example, the capitalization of the Intercontinental Exchange, which manages the New York Stock Exchange, is $66.2 billion, and the Nasdaq is $25.7 billion. And these, by the way, are the largest stock exchanges in the world.

With successful trading, Coinbase's capitalization maybe much higher. For example, after the publication of financial results of DA Davidson, Gil Luria increased the forecast price of Coinbase securities from $195 to $440.

The price at the beginning of trading should largely depend on the value of bitcoin and the state of the crypto market. And while Coinbase is lucky in this regard - on the day of listing, the BTC set a new maximum of $ 64,500.

Is Coinbase's Market Valuation Fair?

A valuation of $60 billion, much less $100 billion, makes Coinbase the most valuable exchange in the world.

According to MarketWatch experts, this is too muchexpensive: they are not sure that buying shares in the company will be a good investment. MarketWatch analysts believe that despite Coinbase's revenue growth over the past 12 months, the company has little chance of meeting the future earnings expectations built into its prohibitive $100 billion valuation.

Moreover, experts emphasize thatThe crypto market is very young, and we should expect increased competition on it. As the market develops, its margins will decrease. In the struggle for clients, exchanges will compete to reduce trading commissions down to zero. This will significantly reduce Coinbase's profitability.

Coinbase's expected valuation of $ 100 billionimplies that its revenue is 1.5 times the combined revenue for 2020 of the two largest exchanges in the market: Nasdaq and Intercontinental Exchange. According to MarketWatch, Coinbase's fair capitalization should be closer to $ 18.9 billion.

However, we should not forget that against the backdrop of dozensloss-making tech companies hitting new highs, the valuation of Coinbase, which is generating real profits in a rapidly growing market, looks even modest. Therefore, it is likely that investors will consider the price of the company's securities to be fair and will push it higher.

How will a Coinbase listing affect the crypto market?

The so-called “effect” is known on the market.Coinbase: after listing on this trading platform, the price of any cryptocurrency increases significantly. At the same time, listing on other major exchanges affects the price of crypto assets less.

It is possible that a Coinbase listing is alsowill have a positive effect on most of the cryptocurrencies traded on it, and above all on bitcoin - as the most popular among them. For the crypto sector, a public crypto company whose shares are available on the largest US stock exchange is a huge step forward. It could become a key force that further breaks down barriers between a wide range of retail investors and the crypto market. A Coinbase listing is a ticket to the big league that has helped the company become part of the traditional financial sector.

That being said, Coinbase is an important part of the crypto sector.Therefore, its entry into the exchange can have both a negative and a positive impact on the entire crypto market. Any fluctuations the company is exposed to will affect the entire industry.

Upon successful start of trading, prices for topcryptocurrencies are likely to go up. Investor confidence will increase, and we will see an influx of new players into the crypto market. This will have a positive impact on DeFi and will also serve as an example for other private companies that are thinking about listing.

“In the short term, Coinbase's entry tothe stock exchange, of course, will be a source of positive speculation. Perhaps that is why recently Bitcoin and Ether have finally renewed their all-time highs, while other large-cap crypto assets (such as Litecoin) have confidently continued their upward movement. ", - noted Viktor Dorokhov, expert of the Digital Economy program of the Institute of Economics and Economics of the People's Friendship University of Russia.

Coinbase will become the largest publiccrypto company. It's likely that every cryptocurrency ETF (exchange-traded fund) will want to include Coinbase stock in its portfolio. Moreover, the listing of Coinbase will also have a positive impact on the position of the US Securities and Exchange Commission (SEC), which does not agree to launch a Bitcoin ETF in the country, citing its refusal, among other reasons, due to the lack of a regulated market. With a public crypto exchange, this argument is no longer tenable.

But if Coinbase securities tradingfail, we will probably see a drawdown in the rates of the main cryptocurrencies. The result will be disappointment among crypto investors and those who were just looking at the sector. It is difficult to say how serious it will be. Perhaps the market will quickly recover from the fall.

Victor Dorokhov also noted that after Coinbase becomes an officially public company:

"WITHthe remainder of the crypto assets traded on it may be revised in view of attention from organizations such as the SEC. Consequently, a series of delisting may follow."

What could go wrong?

Despite the advantages of direct listing,Investing in Coinbase also comes with significant risks. Indeed, in the future, the success of the company depends entirely on the state of affairs on the crypto market, which is not stable.

In its quarterly report, the company said thatits total revenues “are highly dependent on the prices of crypto assets and the volume of transactions carried out on the platform” and that 56% of its net revenues come from BTC and ETH transactions. The company warns that if prices, demand, or trading volume for these cryptocurrencies fall, then its business will be seriously affected. It was the correction in the market in 2018-2019 that caused the loss in 2019.

The Coinbase team also noted that, despiteWhile all precautions are taken, there is always a risk of hacker attacks and security breaches due to “human error, misconduct, insider threats, system errors and vulnerabilities or other violations.”

"Unauthorized parties have tried, and we expect them to continue to try to gain access to our systems and facilities, as well as our customers, partners and third party service providers.", the company admits.

Coinbase cites "significant regulatory uncertainty" among other risks, noting that regulators around the world have increased oversight of digital currencies.

Let's add that Coinbase's position is also threatenedgrowing competition in the crypto market. If other major exchanges like Binance want to go public, their valuation will be much higher than Coinbase. Traditional exchange companies such as CME Group, Nasdaq and Deutsche Börse are also showing interest in the crypto sector. We already wrote above that intensifying competition will dramatically affect Coinbase’s margins.

The best time to enter the stock market

However, now is the perfect time to list Coinbase. The crypto market is on the rise, and the US government is actively distributing money to citizens, a significant part of which will end up in securities.

Realizing this, in the past and this year, several large crypto companies announced their plans to go public. These include Bakkt, Gemini, Kraken, eToro, MicroBT, and BlockFi.

Therefore, Coinbase is far from the last crypto company to go public this year.

However, Viktor Dorokhov notes that the waves of IPOsStill, it’s not worth the wait. Plans and actual listing are two different things. Most exchanges are in the gray area. For example, Binance simply will not be able to pass the audit required for placement, the expert notes.

Be that as it may, today is a historic dayonly for Coinbase, but for the entire crypto market. Will Coinbase stock prove popular among retail investors? We think yes - demand and interest will be high. Another question is how sustainable such an assessment will be. And only time will give the answer.

Nasdaq adds Coinbase shares, how will this affect the crypto market?

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