Coinbase Global Inc. made its Wall Street debut on Wednesday, with the digital currency exchange's stock opening at $381, giving it a whopping market value of $100 billion.
The company’s listing on a public stock exchange is seen by some as an inflection point for digital currencies. Coinbase’s fortunes are seen as closely tied to Bitcoin, the most popular cryptocurrency. Bitcoin has topped $63,000, up from $29,000 at the start of the year, and Coinbase said recently that its first-quarter revenue should total around $1.8 billion, exceeding its revenue for all of 2020.
Earlier in the week Wedbush analyst Daniel Ives described the Coinbase IPO as "potentially a watershed event for the crypto industry and will be something the Street will be laser focused on to gauge investor appetite."
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 last year and the company swung to a profit of $322.3 million after losing tens of millions in 2019. It recently estimated that revenue rose to $1.8 billion and net income increased to between $730 million and $800 million in the first quarter of 2021.
Coinbase earns 0.5% of the value of every transaction that goes through its system. So if someone buys $100 in Bitcoin, Coinbase earns 50 cents. 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 a way around institutional monetary systems and control, is an odd fit for a publicly traded company, which must file quarterly reports with regulators.
However, when Coinbase filed papers with U.S. regulators this year to go public, it said it would do so through a direct listing. That means it has avoided the typical agreements with big banks that would typically buy thousands of shares and promote them.
A direct listing allows insiders and early investors to convert their stakes in the company into publicly traded stock, which hit the market Wednesday with no set price, as is the norm when an IPO is handled by big banks.
Other recent direct listings include the music streaming service Spotify in 2018, the messaging service Slack in 2019 and the data-mining company Palantir Technologies in 2020.
Shares of Coinbase, which will be traded on the Nasdaq under the ticker "COIN,' will attract investors who want to get into the cryptocurrency space in addition to, or without buying any coins at all, said Lule Demmissie, president of Ally Invest.
"It could also be a less volatile security than the coins themselves," Demmissie says.
Still, not everyone is buying into the Coinbase hype. David Trainer, CEO of investment research firm New Constructs, said Coinbase has "little-to-no-chance of meeting the future profit expectations that are baked into its ridiculously high valuation."
Trainer last week put a valuation on Coinbase closer to $18.9 billion, arguing it will face more competition as the cryptocurrency market matures.
However, Ives, of Wedbush, sees Coinbase as a window into the future.
"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," Ives said.