Coinbase will go public through a direct blockbuster list on Wednesday, and investors consider it a “key” moment for the cryptocurrency industry.
Digital currency exchange could be valued at up to $ 100 billion, making it more valuable than major trading venue operators such as the Intercontinental Exchange and the Nasdaq.
It comes as the prices of bitcoin and other virtual currencies have risen in the last year, as investors have sought to diversify their portfolios, believing that inflation will follow. Bitcoin reached a record high of more than $ 64,000 on Wednesday and has doubled in value over the past year.
Coinbase’s public market debut is “potentially a major event for the crypto industry and will be something that will focus on the laser street to assess investors’ appetite,” said Dan Ives, a technical analyst at Wedbush Securities.
“It will legitimize a lot of what these companies are doing,” said Marcus Swanepoel, CEO of the Luno cryptographic platform in London, about the debut of Coinbase. “First, it will show how big the industry is and how much it is growing.”
Coinbase is the largest cryptocurrency company to go public to date. It is the second largest exchange of digital assets in the world by trading volume, according to CoinMarketCap, and was credited with bringing cryptocurrencies into the mainstream with its easy-to-use application.
But there are a number of risks ahead. Cryptocurrencies are notorious for their volatile price movements, and skeptics believe they could be in a massive market bubble that will explode at some point. Meanwhile, global regulators are increasingly trying to bring crypto under their supervision, with the Indian government even seeking to ban digital currencies.
Volatility
Coinbase estimates that it generated revenue of $ 1.8 billion in the first quarter of 2021, a huge 844% increase from the $ 190.6 million it generated in the same period a year earlier. This was largely due to huge price jumps from digital currencies such as bitcoin and ether.
Given that Coinbase’s activity is strongly linked to the performance of major cryptocurrencies, there is a risk that the momentum will change in the opposite direction if there is a significant withdrawal from the market.
“Cryptographic companies will have to figure out how to diversify their revenue streams eventually,” said Hunter Merghart, a former Coinbase executive who is now the head of the Luxembourg-based cryptocurrency exchange Bitstamp.
“I think we are still very much in the investment phase, and the global crypto will continue to grow.”
Bitcoin rose to a notorious $ 20,000 mark at the end of 2017, before collapsing to nearly $ 3,000 the following year. This price volatility has been a key criticism of Bitcoin detractors, who say it fails key tests for currencies, such as acting as a currency or stock.
However, crypto investors believe that such a precipitous drop in prices – known in the industry as the “crypto winter” – is unlikely in the near future. They see bitcoin as a kind of “digital gold” unrelated to other assets and which can serve as a hedge against rising inflation.
“There have been many increases in the price of bitcoin in the last 10 years,” Swanepoel said. “When it goes down, it sets a new baseline and the growth continues on this new baseline.”
“In fact, I think the baseline will be significantly higher outside of this cycle,” he added. If you look at the commodity markets, they have normal cycles and then they have ‘supercycles’. I guess this is a great encryption cycle. It can speed up a lot more now. “
Regulations
Earlier this year, US Treasury Secretary Janet Yellen warned at the confirmation hearing that bitcoin and other cryptocurrencies are used primarily for illicit activities and that the government may need to “restrict” their use.
Coinbase says it is regulated and has partnerships with a number of banks. But he warned in the prospectus that negative regulatory changes could “negatively affect” his financial condition.
Before the end of the term of former President Donald Trump, the Treasury Department proposed a rule that would require financial services companies to register the identity of cryptocurrency holders. This has been controversial with many crypto companies.
“Regulatory risk is high because cryptocurrencies are not currently subject to the same rules as traditional stock exchanges or trading platforms,” said Stéphane Renevier, an analyst at financial education platform Finimize.
“Some of Coinbase’s activities (such as some of its main brokerage services and the use of its own capital for trading) could be subject to stricter regulatory oversight in the future,” he added. “Given that the regulatory landscape is evolving extremely rapidly, the company is always at risk of a change in status, which could have an impact on some of its most profitable businesses.”
Jesse Powell, CEO of Coinbase rival Kraken, told CNBC that he believes “there could be a crackdown” on cryptocurrencies.
“Crypto Technology Giant”
Garry Tan, founder of venture capital firm Initialized and an early investor in Coinbase, said the cryptocurrency market was still in its infancy.
“We’re not there yet,” he told CNBC. “We’re still at the beginning of this half, but it’s not that crazy anymore.”
But Tan and other Coinbase bulls say the company has created a competitive “ditch” around its business, which should allow it to flourish even with the emergence of new regulations.
“Coinbase is like the technology giant of crypto,” Tan added. “Coinbase (the debut) and existing as one of the core stone companies in Silicon Valley, is very strong because it means that, just as the personal computer revolution needed Apple and Microsoft, the cryptographic revolution needed Coinbase.”
Insiders in the crypto industry say that Coinbase is only part of the story. There are other emerging trends in the market, such as digital collectibles and so-called decentralized financing, which aims to recreate traditional financial products without intermediaries such as banks. In addition, Coinbase may face tougher competition from rivals such as Binance and Kraken, the latter weighing its own share list for next year.