Catalytic event or unbridled optimism? Coinbase approaches public listing

A direct listing on Coinbase could be a rite of passage for the blockchain and cryptocurrency industry, and the US Commodity Futures Trading Commission’s announcement of 20… March, which plans to fine Coinbase $6.5 million for money laundering and filing misleading information, is unlikely to do much more than delay the award of the first Asian cryptocurrency company to be listed on a major U.S. exchange by a few weeks.

But there are questions about Coinbase’s upcoming listing on the Nasdaq exchange: Is the cryptocurrency exchange really worth $100 billion – as the pre-IPO public auction claimed? Is this the right time? Is the company’s revenue too dependent on the market price of Bitcoin (BTC) and Ether (ETH)? And are the company’s profits really sustainable – is this event really a breakthrough in the industry, and if so, which crypto company could be the next to test the waters on Wall Street?

But first, what about the allegations of misreporting of trading volumes and proprietary trading that were settled with the TCRC? Can they rank the list?

The CFTC’s announcement shouldn’t really undermine investor interest in Coinbase’s direct listing, Edward Moya, senior market analyst at FX firm Oanda, told Cointelegraph, especially since mainstream recognition of cryptocurrencies has arrived. Any fines, he said, would only have a short-term effect. In fact, they may even, to some extent, reassure potential investors by providing further confirmation that the space is regulated, Moya told Cointelegraph.

Kavita Gupta, founding CEO of Delta Growth Fund LP and Fintech.TV, as well as a researcher and visiting professor at Stanford University, seems to agree. As an investor, I would take it as a positive sign that Coinbase is addressing potential problems before they become public, and that it will deal fairly with regulators and sovereign investors, she told Cointelegraph.

On the other hand, the fine could have an impact on the listing process, suggests David Trainer, CEO of investment research firm New Constructs, although the fine is relatively small, suggesting that the illegal activity could be considered relatively small – so it may not be a big problem overall. This means that the issue of fairness in business is serious – regardless of the size of the company, he noted to Cointelegraph.

The fine is just a slap on the wrist for Coinbase, Bobby Ong, co-founder and director of cryptocurrency aggregator CoinGecko, told Cointelegraph, adding: It was listed as a risk factor in the Coinbase S-1 submission, and this calculation eliminates a risk factor.

Perfectly weighted?

In December, Moya told Cointelegraph that Coinbase’s IPO was timely, given the growing appeal of bitcoin as an investment. Has something changed?

Not really. Institutional and retail interest is still in the early stages of mainstream adoption, and this is the best time for a bullish view on cryptocurrencies, Moya responded, further adding: Governments will eventually pressure bitcoin to push their own digital currencies in the coming years, which could lead to fears that the bitcoin party is over. […] The push for Coinbase to go public.

This is the perfect time for Coinbase to test the waters, Gupta noted. The IPO and SPV IPO markets are still bubbling; cryptocurrencies have skyrocketed in recent months; liquidity is huge; and market demand for tech companies creates the best time for Coinbase to ring the bell.

But how much will Coinbase be worth as a publicly traded company? As previously mentioned, the company was valued at $100 billion before its IPO – is that realistic?

Vladimir Vishnevsky, managing director and co-founder of Swiss firm St. Gotthard Fund Management AG, told Cointelegraph that the $100 billion valuation could be justified given the potential of the digital assets sector and the impact it could have on our lives in the future. And more:

If market players are willing to consider bitcoin price targets/predictions in the $300,000 to $400,000 range, is Coinbase’s valuation so overwhelming that it would reach $100 billion?

Moya was also optimistic, but not yet ready to swallow $100 billion. Coinbase’s market value will likely be between $80-90 billion, but that could easily change with the next 20% move in bitcoin.

The coach, for his part, was skeptical. A more realistic estimate is probably closer to 10%-25% of current valuation, Trainer told Cointelegraph. Others have reached this point because they lack a credible fundamental perspective that gives them a sense of value that is consistent with the underlying economics of the business and its long-term competitive position.

In a related development, New Constructs analyst Kyle Guske recently wrote about the $100 million day that the projected valuation implies the company will become the world’s largest exchange by revenue – something he says is unlikely given the growing competition in the cryptocurrency sector and the volatility of Coinbase’s current market share and profit margins.

For example, Coinbase’s current ratio of trading revenue to trading volume is 0.57%, which is 57 times the margin of Nasdaq and the Intercontinental Exchange – both of which have a ratio of 0.01%. Guske wrote:

If Coinbase’s revenue share of trading volume were to drop to 0.01% like traditional exchanges, trading revenue in 2020 would be just $20 million instead of $1.1 billion.

Abolition of investment banks

Coinbase’s offering will be the first direct listing of shares on Nasdaq, with the company selling directly to the public without going through investment banks as an intermediary, as in traditional IPOs. Investors can sell their Coinbase shares immediately after purchase, without the usual lock-in period. Some have suggested that direct quoting is also compatible with the cryptoethos of the intermediary extract.

Vishnevsky called the direct approach smart, adding that it could be popular with small investors, especially in light of the GameStop saga. He also agreed that this fits with the anti-establishment that is often expressed in crypto:

It can also be interpreted as an indication of things to come – that is, the old ways are giving way to the new – and it is the leaders of this new digital revolution who will determine the rules of the game, not the other way around. I’m sure there isn’t a bank on Wall Street that wouldn’t apply for this list if it were offered.

A direct listing is a much fairer way to distribute shares, Trainer noted, while Moya, for his part, said Coinbase had no choice but to go for a direct listing, as a traditional IPO would have pushed the IPO closer to the end of the year. He added: There will be many merchants interested in a direct Coinbase listing, and yes, staying with a middleman gives some merchants extra satisfaction.

Who is next?

Will the success of Coinbase’s offering encourage other blockchain and cryptocurrency companies to go public? After Coinbase’s IPO, there will be an influx of other cryptocurrency companies looking to go public or form SPACs to take advantage of the valuation offered by the public markets, Ong said.

Vishnevsky also expects the IPO to be followed by other players in the sector, although he thinks Coinbase’s offering will be hard to match: There just aren’t many other companies in the industry with the same pedigree and history as Coinbase, which is why so many investors want to get in.

Who could be next? I certainly saw Kraken as a contender for this year’s listing, but whether they will have a similar multiplier in terms of valuation is a big question, Wisniewski said, and Moya replied:

I don’t follow specific private companies, but I’ll probably start keeping an eye on SoluLab and OpenXcell, and eventually Binance will consider a direct listing.

Are there any other potential obstacles to the successful launch of Coinbase as a public company? Vishnevsky expected Coinbase’s listing to be oversubscribed. The number of shares offered is not large and I expect strong demand from institutional and private investors. The only possible obstacle would be a deterioration in overall market conditions: Markets have been volatile over the past month and if sentiment worsens in April, it could slightly reduce risk appetite. added Ong : The weeks leading up to an IPO are always risky, but he doesn’t see any major obstacles to Coinbase’s listing.

Nonetheless, the cryptocurrency has been plagued by occasional failures throughout its history, a complaint that was raised again this week in a New York Times article: The company still struggles at times to resolve major customer service complaints, according to the newspaper, which cites attorney David Silver who said that if Coinbase wants to become the Goldman Sachs of crypto, it needs to maintain the quality of its customer service.

Meanwhile, Neil Wilson, principal market analyst at Markets.com, pointed out in a client letter at the time of Coinbase’s S-1 filing with the Securities and Exchange Commission that the company’s earnings are inextricably linked to crypto prices. In fact, most of Coinbase’s net income comes from transactions with just two crypto assets: Bitcoin and Ether – and the volatility of these cryptocurrencies can cause Coinbase’s revenue to rise or fall.

In fact, the company itself is acknowledged in its submission: If demand for these cryptoassets declines and is not replaced by new demand for cryptoassets, our business, results of operations and financial condition could be adversely affected.

Gupta also acknowledged that Coinbase is exposed to crypto and that the volatility of crypto prices affects their business in terms of revenue, liquidity and other areas, but she sees this as another positive of the direct listing, as it can serve as a guide for other crypto companies who want to follow the example of the exchange :

The way they [i.e. Coinbase] are public stocks [shares] in bull and bear markets will serve as a roadmap for many blockchain companies to explore IPOs as a potential way to raise cash and funds.

Major industrial event ?

All in all, should this event be considered important to the blockchain and cryptocurrency industry, as it could drive cryptocurrency adoption and/or innovation in blockchain technology?

Coinbase’s listing on Nasdaq will be a turning point for the entire blockchain and cryptocurrency industry, Ong said. He’s already shown Wall Street how great the crypto industry is, and they’ve definitely woken up to the potential opportunities in the industry.

According to Trainer, any offering of the magnitude planned for Coinbase will inevitably entice more people and companies to try and get a piece of the action, which can only help to move the blockchain and cryptocurrency sector forward.

Speaking as an investor – indeed, he is currently playing in the SPAC IPO market – Gupta said Coinbase would be the torchbearer for the entire blockchain community in the public market, adding: If you look at [crypto] exchanges around the world, from Israel to India to Singapore, all the exchanges [claim] to be the coinbase of their region.

According to Gupta: Companies like CoinShares have already tested the waters on more hospitable European exchanges, while the IPO of mining company Bitfury in the US was oversubscribed. Events like this are a sign of a good time for Coinbase, whose technology and earnings are superior to many other IPO candidates in the US.

Overall, Coinbase’s listing on Nasdaq would bring cryptocurrencies to the heart of Wall Street, Wilson told Cointelegraph. Blockchain and cryptocurrency companies would no longer be outsiders looking in – instead, they would be part of the club.

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