Coinbase, the world's second-largest cryptocurrency exchange, has confirmed its intention to go public. In February 2021, the company submitted a form to the Securities and Exchange Commission (SEC), the US stock market watchdog. This US federal agency is responsible for regulating and overseeing the financial markets. Coinbase is currently valued at over $90 billion following an auction on the Nasdaq Private Market.
Introducing Coinbase, the crypto-economy giant
Founded in 2012 and based in San Francisco, Coinbase is an online digital currency wallet founded by Brian Armstrong and Fred Ehrsam. The US-based platform allows users to buy, sell, store and save cryptocurrencies in complete security. Coinbase verifies your identity when you create your account. Cryptocurrencies can then be purchased by SEPA, credit card or bank transfer.
Coinbase began its activity by enabling the buying and selling of bitcoins. Today, a multitude of cryptos are available on its platform:
Bitcoin
Bitcoin cash
Litecoin
Ethereum
Ethereum classic
Dogecoin
and many more. You can therefore use its services for your crypto trading and diversify your funds easily. The transaction fees charged by Coinbase are 1.49% on classic purchases/sales, 3.99% on credit card payments and SEPA transfers cost 15 euro cents.
At the end of March 2021, Coinbase will be listed on Nasdaq, the second largest stock market in the United States after the New York Stock Exchange. Most of the companies listed on the Nasdaq are in the IT and internet sectors. Coinbase's IPO is predicted to be the second-largest technology IPO in history, after Facebook, which has also been listed on Nasdaq since 2012.
Coinbase plans to go public as a direct listing under the ticker symbol COIN. Coinbase's founders and initial shareholders will sell a portion of their shares at a pre-determined price. No new shares will be issued. This procedure enables the founders and initial shareholders to secure the value of their shares against the arrival of new investors at the time of the company's IPO. It is also a much less costly procedure for the company, which will not have to commission financial intermediaries.
Coinbase, a fast-growing company
Over the past five years, Coinbase has seen a meteoric rise, with revenues increasing from $16 million in 2016 to $1.277 billion (or $1277 million) in 2020. Its revenues have more than doubled between 2019 and 2020.
Transaction revenue accounts for 86% of its income. Most of these transactions involve Bitcoin and Ethereum, the two cryptocurrencies with the highest valuations at present. Coinbase's revenues are therefore hugely dependent on the price of cryptocurrencies, which explains their large annual variations:
16 million in revenue in 2016
927 million in 2017
520 million in 2018
534 million in 2019
1,277 million in 2020
The peaks in revenue in 2017 and 2020 are directly linked to the meteoric rises in the Bitcoin price during these periods.
In 9 years, Coinbase has become the second largest cryptocurrency exchange with more than 43 million customers. It is the market leader in the United States. The platform is active in more than 100 countries and has processed more than $455 billion since its creation. 90 billion are currently active on Coinbase, according to information the company has submitted to the Securities and Exchange Commission.
The impact of rising Bitcoin prices on Coinbase's valuation
Prior to its IPO, Coinbase participated in a private auction on the Nasdaq Private Market, a division of Nasdaq that trades the shares of companies before they go public. Coinbase shares sold for $350 each. Coinbase was valued at $90 billion. Some shares had even traded at 375 dollars earlier in the auction, valuing Coinbase at nearly 100 billion dollars. According to sources, the auction was Coinbase's last chance to buy shares before going public.
Last month, Coinbase held an auction on the Nasdaq Private Market, during which the company achieved a valuation of $77 billion. Coinbase's share price performance is evidence of growing investor interest in the cryptoeconomy.
Coinbase's valuation is directly linked to changes in the price of Bitcoin. Its valuation is linked to the confidence that investors place in Bitcoin. The price of Bitcoin has almost doubled since the start of the year, and now stands at over $56,000. This price explains Coinbase's very high valuation, which far exceeds the company's revenues of around $1.3 billion in 2020.
What do we think about investing in Coinbase?
As Coinbase's share price is directly linked to that of Bitcoin and other cryptocurrencies, it will be extremely volatile. It can therefore represent a risky investment. Nevertheless, if we look at the historical development of Bitcoin, its price has risen considerably over the years. Coinbase can therefore prove to be a very good investment over time.
Coinbase's value will only be determined on the day it is floated on the stock market, depending on supply and demand. Its latest valuation of $350 per share is therefore purely indicative. Given its 2020 annual revenues of around $1.3 billion, its valuation at over $90 billion may seem extremely high. Investing in Coinbase shares is therefore a considerable gamble at the moment. However, a fall in the Bitcoin price is expected in the near future. The predictions are that Coinbase shares will fall at the same time. It may therefore be wise to wait before investing money in Coinbase. Other cryptocurrency exchange platforms may prove more attractive for investment purposes at the moment.
