Coinbase IPO

26 April 2021

Is this the watershed moment cryptocurrency needs to become mainstream.  

Once ridiculed as a financial instrument for reckless investors, digital currencies march ever closer toward worldwide acceptance.

What is Coinbase?

Coinbase is the largest and most profitable cryptocurrency exchange platform. The company employs more than 1250 people, operates in over 100 countries, and reported more than $14B profit in 2020.

Armstrong launched Coinbase in 2012 to provide a simpler way for anyone to buy Bitcoin. The company has regularly added more cryptocurrencies to its exchange platform and currently offers one of the widest selections of any exchange.

In a filing with the SEC, Coinbase explained, "We are building the crypto-economy - a more fair, accessible, efficient, and transparent financial system for the internet age.".

Coinbase is currently the most popular cryptocurrency exchange in the US, boasting more than 56 million users. The company announced shortly before the listing it had made more than $1.8B in its first quarter, which is a ninefold increase from this time last year when the company posted $191m in the same period.

Coinbase primarily profits from transaction fees charged to users trading on its platform. The vast majority of transactions involve users buying or selling Bitcoin and Ethereum, which have been on a historic run since the end of 2020.

Where could the Coinbase IPO lead?

The first US-based Bitcoin ETF could be next, for which there is an immense amount of institutional competition (an ETF is a type of tradable security that tracks an asset or collection of assets, usually an index like the S&P 500 or the FTSE 100, but in this case would track Bitcoin). JP Morgan and Morgan Stanley are among the firms vying to be the first to offer this.

Many crypto insiders believe the listing will bring even more interest from Wall Street and other institutions, leading to a flow of capital into cryptocurrencies and blockchain-based startups.

However, there is a long, long road ahead. Many investors are still staunchly opposed to cryptocurrencies and crypto exchanges, like Warren Buffet, who famously called Bitcoin "rat poison squared", a "mirage", and a "gambling device".

Similarly, his long-time business partner Charlie Munger called Bitcoin "just dementia". Both men describe Bitcoin and other cryptocurrencies as unproductive, speculative assets and therefore not worth investing in.

However, since the 2017 crypto boom, there has been a surge of institutional interest in crypto. Many Wall Street banks like JP Morgan and global tech companies like Facebook are creating crypto coins to rival Bitcoin.

For the time being, the heated debates about the crypto market's legitimacy look set to continue.

It's not just Wall Street bankers that can't figure out where the crypto industry is headed.

Crypto enthusiasts also can't agree on whether the Coinbase listing is a good thing.

While many will celebrate Coinbase's Nasdaq listing as a step toward widespread adoption, others will lament the occasion as the day the Bitcoin founder Nakamoto's vision died.

The 'point' of Bitcoin and many other cryptocurrencies was to provide trustless global payments to end the global dependence of financial intermediaries. Many early adopters believed Bitcoin could pave the way to financial freedom away from the prying eyes of regulators and outside the control of mainstream banking.

For others, a non-sovereign asset like Bitcoin was supposed to avoid manipulation and control from the government and the global banking industry, helping people living under oppressive governments.

Some claim Coinbase's Nasdaq listing is an abandonment of Bitcoin's founding principles.

Satoshi Nakamoto's long term vision was to replace government-controlled fiat currencies with a 'peer-to-peer electronic cash system', not to 'legitimise' cryptocurrencies through state-regulated exchanges like Nasdaq while simultaneously creating a new way for Wall Street banks and international institutions to transfer more efficiently. 

Wavering from the initial vision isn't the only criticism of Coinbase's IPO

Some financial analysts predict Coinbase's value could suffer extreme volatility, as 96% of their revenues come from trading fees, making them a business overly reliant on a profit source that fluctuates enormously.

CEO Brian Armstrong has responded to this criticism stating the company aims to branch out into other products like crypto cards in the next ten years, similar to those offered by crypto.com, which would stabilise the company's price (a bit) long term.

One of Coinbase's financial backers, Bradley Tusk, recently commented "people have had doubts about crypto for a long time. And I don't blame them. But what it did become, whether it was intended or not, is an asset class - something that people looking for a really balanced portfolio want to be in".

In reference to cryptocurrencies' future uses, Tusk commented, "Are we going to hit a point where all payments are digital and we won't use cash or credit cards? Absolutely".

It seems that many prominent Wall Street figureheads will continue avoiding and criticising Bitcoin until its volatility levels settle. Considering the ferocious debate surrounding the cryptocurrency's value and use, that seems unlikely to happen any time soon.

Regardless of your opinion on cryptocurrencies, Coinbase's NASDAQ listing marks the biggest step so far toward worldwide acceptance of cryptocurrencies.

Whether the frenzy surrounding Coinbase's IPO will continue remains to be seen.   In time, we could see other crypto exchanges like Binance or Kraken listed on stock exchanges, growing the industry and bringing cryptocurrencies into the mainstream.

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