Coinbase’s valuation soars in first public listing of a major cryptocurrency company.
Coinbase allows customers to buy and sell digital currencies and takes a transaction fee. Credit Jason Henry for The New York Times. Credit Jason Henry for The New York Times
Shares in Coinbase, the first major cryptocurrency company to list its shares on a U.S. stock exchange, jumped in their market debut on Wednesday, showing that investors are hungry to get a piece of the hot market for digital currencies.
Coinbase began trading on Wednesday afternoon at $381 a share, a 52 percent increase over a $250 reference price set by Nasdaq on Tuesday. (A reference price is set by a stock exchange based on expectations for where the stock will
open.)
The stock swung as low as $310 and as high as $429 in a volatile day of trading that reflected the unpredictable nature of cryptocurrency prices. Coinbase
ended the day at $328.28, valuing the company at $85.7 billion counting all of its outstanding shares — more than 10 times its last valuation as a private company.
Founded in San Francisco in 2012, Coinbase allows people and companies to buy and sell various digital currencies, including Bitcoin, the most popular, and Ether. The company, which takes a transaction fee, has been riding high on a boom year for cryptocurrencies, as investors have poured money into the assets and driven their prices to new highs.
This week, the price of Bitcoin hit a record $64,000 amid excitement for
Coinbase’s listing, double its value at the beginning of this year. On Wednesday, prices had come down to $61,939.
Unlike many other start-ups that go public, Coinbase is profitable. In the
first three months of the year, it estimated it made $730 million to $800 million in net profit on $1.8 billion in revenue. But the company warned in its financial prospectus that its business performance was closely tied to the price of cryptocurrencies, which are volatile.
Coinbase has raised more than $500 million from venture capital investors, who last privately valued it at $8 billion. Its largest shareholders include Andreessen Horowitz, Tiger Global and Paradigm, a crypto-focused investment firm.
Brian Armstrong, Coinbase’s chief executive and a co-founder, owns nearly 40 million shares in the company, making his stake worth roughly $13 billion. Over the last year, Mr. Armstrong has said Coinbase employees should avoid political discussions, a stance that has caused controversy. Some of the company’s former Black and female employees have also spoken out against unfair treatment and were found to have been underpaid in a company report.
Coinbase went public through a direct listing, an unusual transaction where no
new shares are issued or sold — they simply start trading. Coinbase is the largest company to go public via direct listing, which has become popular among well-funded Silicon Valley start-ups that do not need to raise more cash from public market investors. Direct listings do not have traditional lockup periods that prevent insiders from selling shares for the first six months after the listing.
Coinbase’s listing on the Nasdaq stock exchange gives traditional investors, who may be interested in digital currencies but are unable or unwilling to buy them directly, an indirect way to buy into the market. The company’s
financial prospectus included a glossary of crypto-specific terms, including internet slang like “hodl,” which means holding on to your cryptocurrency investments even when the prices tank.
As demand for cryptocurrencies has surged this year, Coinbase has struggled to keep up with the demand. Some customers whose accounts were plundered by attackers or who were locked out of their accounts have said the company ignored their pleas for help.
Here’s what you need to know about the Coinbase debut.
Brian Armstrong, co-founder and chief executive of Coinbase, at the company’s office in San Francisco in 2017.Credit...Michael Short/Bloomberg.
Credit...Michael Short/Bloomberg
Why Coinbase matters
The company is the first major crypto business to trade publicly in the U.S. Its size means that its stock is likely to be held by mainstream index funds, giving average investors (indirect) exposure to the world of crypto. “Hopefully Coinbase going public and having its direct listing is going to be viewed as kind of a landmark moment for the crypto space,” Brian Armstrong, Coinbase’s chief executive, told DealBook’s Andrew Ross Sorkin in a CNBC interview.
It instantly became a financial giant on Wall Street.
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At $86 billion, Coinbase’s market value exceeds that of the stock
exchanges its shares will trade on: Nasdaq’s market cap is $26 billion,
while ICE, the parent company of the N.Y.S.E., is valued at $67 billion.
And by the way, Goldman Sachs’s market value is $111 billion. -
Coinbase is profitable, taking in $322 million last year — and an estimated $800 million in the first quarter this year alone. It also made significantly more revenue from trades (0.6 percent) than did the Nasdaq (0.009 percent) and ICE (0.011 percent).
But there are also giant risks.
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Coinbase benefited hugely from a run-up in cryptocurrencies’ prices in recent months, and the company warned in its prospectus that its business was “substantially dependent on the prices of crypto
assets and volume of transactions conducted on our platform.” -
Skeptics think competition will eventually bring Coinbase’s fat margins down,though Mr. Armstrong asserted that he didn’t seen any sign of that happening yet. “Longer term, yes, I do think there could be fee
compression, just like in every other asset class,” he told CNBC.
Source: The New York Times