June 22, 2021
Cryptocurrencies have taken the world by storm, but is Coinbase able to utilise that?
June 22, 2021
Coinbase is one of the most popular cryptocurrency exchanges in the world. It is a US-based platform that allows its users to buy, use, and trade cryptocurrencies between 103 countries. Its main current function is as a middleman in the cryptomarket, serving as a ‘centralised on-ramp to a decentralised ecosystem'.
Coinbase currently has approximately 56 million registered users and its popularity is only rising. One of the main reasons for this is its positioning as a safe harbour. Unlike many of its competitors, it has never been hacked and has a long record of compliance with existing regulations and law enforcement. While the presence of irresponsible actors has seen currencies such as BitCoin used extensively for fraud, trafficking and other illegal activities, Coinbase has established itself as the reputable face of Crypto investing - which goes a long way to explaining its $217M in equity financing.
Its stated goal, however, is larger than simply buying and selling crypto. It was founded in 2012 by former Airbnb software engineer Brian Armstrong and former Goldman Sachs trader Fred Ehrsam, who became frustrated with the high fees and opaque nature of overseas digital transactions. They wanted to disrupt the global financial system by building the ‘cryptoeconomy’ - a more ‘fair, accessible, efficient, and transparent financial system for the internet age’.
Trading began at around $381 a share, making Coinbase's valuation close to $100 billion. This was a 52% increase over their $250 reference price set by Nasdaq, and though the day was volatile it closed at $328.28, valuing the company at $85.7 billion. Now, amid volatility in the crypto markets (in part triggered by the Tweets of a certain, eccentric billionaire), Coinbase is trading at just $229 at the time of writing - meaning its investors are more cautious than they initially were. Nevertheless, Coinbase's S-1 reveals a new juggernaut in the financial services sector. It has instantly become a financial giant, with a customer base and NPS score that could rival any retail bank in the world.
Coinbase made the unusual choice to go public via direct listing, and are the largest company to do so. It is one of the few startups in the tech world that is profitable. In the first three months of the year, it is estimated the company made up to $800 million in net profit.
As the first major crypto business to trade publicly in the US, its success is being viewed as a landmark moment that will hopefully serve as a turning point for the industry. Many traditional investors claim to be interested in digital currencies but are unwilling to buy directly into the market. Coinbase's success could propel the mainstream acceptance of cryptocurrencies in coming years.
Some people do, however, caution that the company's valuation has gotten too lofty and, given its success is tied directly to the values of the currency it markets, could continue to be volatile. The recent boom of non-fungible tokens exhibits many signs of a bubble, and if it bursts it could bring the value of cryptocurrencies and, in turn, Coinbase tumbling down with it.