As Coinbase files for IPO, crypto currency finds mainstream
The digital currency exchange Coinbase Inc reported on its blog on Thursday 17 December that it had 'confidentially submitted to the Securities and Exchange Commission (' SEC ') a draft registration declaration on Form S-1.' It is possibly no accident that the announcement has come as record prices have been reported by the best established cryptocurrency, Bitcoin.
The filing fired the starting gun on a prospective IPO after much speculation earlier this year that Coinbase was planning to go public. Reuters announced, citing an unnamed source, that Goldman Sachs Group Inc was hired to prepare for the stock market listing of the San Francisco-based firm.
As the registration is under review and confidential, investors do not yet know when the IPO will occur, what form it will take or what Coinbase is looking for valuation. If it goes ahead, the IPO will make Coinbase the first major U.S. stock market crypto exchange to be listed which will represent a dramatic shift in the understanding of the validity of crypto currencies.
As Barry Silbert, founder of the Digital Currency Company, tweeted:' The acquisition price of a bunch of crypto companies is about to go way higher, thanks to the Coinbase IPO.'
Established in 2012, Coinbase is a crypto business giant with more than 35 million individuals using the platform to purchase, sell, store, use and receive crypto currency in over 100 countries. In July, the company released its institutional review of Crypto H1 2020 in which it noted that it operates the world's largest controlled exchange.' Some say that in the last year alone, it has gained 5M users. Offering more than 30 cryptocurrencies, the firm keeps on its website more than $25B in assets and its total traded value exceeds $320B.
The last time Coinbase completed a funding round, the company was valued at $8B in 2018. The valuation seems likely to have increased dramatically since then, considering the recent rallies in Bitcoin. Many big names definitely have confidence in the organization and are willing to help it. In addition to venture capital firms such as IVP, Tiger Global and Greylock Partners, Coinbase has attracted more than $500 million from financial institutions such as BBVA and the New York Stock Exchange.
$28 billion theoretical valuation?
Analysis company Messari, operating from publicly accessible information, estimated Coinbase's future IPO value as $28B. More relevant for the larger crypto industry is that whatever the actual valuation of Coinbase turns out to be, it will serve as a foundation for future crypto valuations.
While it has diversified into acquiring or investing in other crypto businesses, by charging commissions on transactions, Coinbase generates much of its revenue. Interestingly, Brian Armstrong, CEO and Co-Founder of Coinbase, recently blogged that "this is not only a time of high volumes, but also price volatility" and that "crypto investing is not without risk." Bitcoin's rising valuations would inflate those revenues. Of course, Coinbase will produce revenue with any exchange, regardless of the price of Bitcoin, Ethereum or Litecoin, although high asset valuations mean greater commissions.
Capitalising on the acceptance of crypto
The uncertainty of Crypto may be appealing to retail day traders, but it is also one of the reasons the industry was once wary of institutional investors. These attitudes are rapidly shifting and Coinbase is capitalizing on the growing acceptance of cryptography. Its analysis in July states:
Today, for the first time, many larger and more traditional institutional investors are allocating Coinbase to establish direct positions and endorse crypto fund managers as part of their alternative strategy. In H1, we saw a major increase in the growth of our institutional market and continued to add leading university endowments, conventional multi-strategy hedge funds, VCs, and large family offices to our roster of customers who directly purchase digital properties.'
The company's Brett Tejpaul announced that Coinbase had $6B in institutional assets in April 2020 to put the development into figures. The figure had risen to $20B by November.
Lots of concerns remain about the IPO strategy of Coinbase. It will be important to see what shape it takes if the SEC green lights the Coinbase bid, and that is not a given. As an alternative to a conventional IPO, a direct listing has been mooted. There is also talk that the business could follow the path of the special purpose acquisition business.
Before making any decisions, more conventional investors may want to see more financial details from Coinbase. Company Insider reports that 'no profit or sales estimates have ever been disclosed' by Coinbase. It is possible to convince the same investors that the exchange is doing its banking with JP Morgan and is audited by Deloitte.
Time it right Time it right
The time period is going to be interesting for the prospective IPO. At present, the spectacular boom in Bitcoin casts a rosy glow over the entire crypto industry. In addition to the 2017/18 boom and fall, in the last twelve months, the digital currency has risen by more than 200 percent and is currently trading at about $23,000. There are many reasons for this latest rebound in its popularity.
The printing of money by central banks to compensate for Covid 19's financial harm has led many investors to search for fiat currency alternatives. Major global currencies are being devalued by their own governments, and as a way to transfer value outside the control of state policy, cryptocurrencies have long been sponsored.
The other side of this is that cryptocurrencies' unregulated existence has made governments distinctly frosty against them and the institutions that deal with them. There was a notion in the past that the sector was contaminated in some way. Donald Trump famously weighed in on the subject and declared that 'on thin air' crypto currencies were based and that' unregulated crypto assets would encourage illicit behavior, including drug trafficking and other illegal activity.' The policies of the President elect could be more complex.
Many were definitely not in agreement with President Trump. The idea that cryptocurrencies are of most interest to money launderers and dark web users has changed considerably over the last couple of years. In the eyes of previously cynical financial institutions and skeptical regulators, there is a rising sentiment that cryptocurrencies are becoming more respectable.
They joined other existing payment companies such as Square and Revolut when the household name PayPal and its 346 million users declared their entrance into the crypto-currency market. Crypto currencies are becoming traditional. These innovations have led Bitcoin to some optimistic predictions and have come from influential voices in the world of investment. A leaked report from a senior analyst at Citibank in November reckoned that by December 2021, Bitcoin could theoretically trade at $318,000. More recently, Bitcoin could skyrocket to $400,000, Guggenheim Investments recently predicted. An frequently heard expression is that 'digital gold' is possible for cryptography.
In such an encouraging environment, if Coinbase were to launch its IPO, then investors would be looking at impressive returns. Alternatively, the uncertainty of the crypto-currency could come into play in a much less lucrative way. It may be worth noting that at the beginning of the year, Bitcoin was valued at about $7000 and dropped to below $5000 when the pandemic hit. It has risen from about $10,000 to its present $20,000+ amount in the last three months alone. The definition of volatile is pretty much that. If Bitcoin's price were to retreat dramatically from its current highs, then any future public listing by Coinbase will have a knock-on impact.
How wonderful an effect? Oh, who knows? A potential Coinbase public listing could be a common way for investors to gain exposure to the crypto industry without personally owning crypto currency, whether crypto currencies continue to grow or undergo a correction. Coinbase looks likely to be a bellwether for the industry, possibly the first big exchange to list on the US stock market.