Coinbase Wall Street Debut Gives the Cryptocurrency Industry Increased Validation

Blockbuster Coinbase’s Wall Street debut

The stunning and long-anticipated Wall Street debut gave the cryptocurrency exchange market capitalization at $85 billion on a fully diluted basis, not only making the company the most valuable exchange but also bolstering the nascent cryptocurrency market. Coinbase’s stock went up 52.4% from a reference price of $250, reaching an intraday record high at $429 apiece to close the first day of trading at $328. 

Coinbase IPO or Direct Listing?

Following some other tech companies like Slack, Roblox, Spotify, and Palantir, Coinbase went public in pursuing a direct listing under the ticker symbol “COIN”; however, as the target exchange, the company chose the Nasdaq while the rest went public on the New York Stock Exchange.  

Unlike a traditional IPO, the reference price in direct listing reflecting past transactions and input from investment banks doesn’t set the opening price on the first day of trading. Given five tech companies — Asana, Spotify, Palantir, Roblox, and Slack — went public with the opening price on average 37% higher than the reference price, Coinbase’s stock jumped 52.4% from a reference price, opening at $381 apiece, 

Circumventing the traditional IPO process, Coinbase listed its stock directly and didn’t issue any new shares enabling existing shareholders such as employees to sell shares instantly to the public at a market-driven price.  

What is Coinbase?

Coinbase is the leading U.S. cryptocurrency exchange that eases cryptocurrency transactions offering a wide array of products including an advanced trading platform, wallets for retail investors, custodial accounts for institutions, and even its own U.S. dollar stable-coin, according to Investopedia. 

Founded in 2012 by Brian Amstrong and Fred Ehrsam, Coinbase Global Inc. is a fully licensed and regulated cryptocurrency exchange platform. Initially allowing only for Bitcoin trading, but the company quickly integrated other cryptocurrencies including Litecoin, Ethereum, XRP, Bitcoin Cash, and many others as long they meet its trading requirements. Apart from cryptocurrencies, the company supports some fiat currencies, including U.S. Dollar, the British Pound, the Euro, and some more. 

Making most of the money via transaction fees from platform trades by institutional and retail investors, Coinbase is considered to be one of the top global crypto exchanges by trading volumes, traffic, and liquidity. Since launching in 2012, the company reports having enabled transactions worth more than $455 billion.

With more than 43 million retail users and 7,000 institutional customers, the platform reported $1.8 billion of revenue in Q1 2021 which is a nine-fold increase from $190.6 million in 2020. According to the Coinbase filing, the company’s net income amounted to approximately $730 million to $800 million. Overall the numbers show the increasing popularity of investing in cryptocurrencies and the growing credibility of the crypto industry. 

The Coinbase Platform

Coinbase users can trade on two platforms: the original Coinbase platform, which allows users to use U.S. dollars to purchase cryptocurrency, and Coinbase Pro. Formerly known as GDAX, Coinbase Pro has advanced charting functions and allows users to make crypto-to-crypto transactions, as well as place market, limit, and stop orders.

Except for Hawaii, Coinbase is supported in all U.S. states. As for the brokerage operation, Coinbase users can choose to trade on the standard Coinbase platform where users can purchase cryptocurrency with U.S. dollars, and Coinbase Pro that is a premium service, formerly known as the Global Digital Asset Exchange (GDAX). 

The standard Coinbase platform is created with beginner investors with features like its learning program or recurring purchases designed to help inexperienced investors understand cryptocurrency and start investing. Note that the standard platform charges higher commission fees in comparison to Coinbase Pro and other cryptocurrency exchanges.

Coinbase Pro supports more professional traders who make crypto-to-crypto transactions and trade high volumes, offering lower commission fees, more advanced tools, and features like fancy charts to provide a more satisfying trade experience.  

Additionally, Coinbase provides not only cryptocurrency brokerage services but also a cryptocurrency payments platform for businesses and custodial services for cryptocurrency storage for institutions. The company also launched its own stable cryptocurrency linked to the U.S. dollar, called USD Coin. 

Furthermore, the company doesn’t charge any transaction fees in off-chain transfers between the users of the platform and provides users on Android and iOS platforms with a free digital wallet.

As security is of great importance to Coinbase, the company insures its platform for any losses on account of theft or hacks of the website which distinguishes the company very positively from other cryptocurrency brokerages that are not insured by the Securities Investor Protection Corporation (SIPC).

The Crypto Economy

According to Coinbase’s prospectus, the crypto economy is “a more fair, accessible, efficient, and transparent financial system for the internet age that leverages crypto assets: digital assets built using blockchain technology.”

Starting in 2012, Coinbase wanted to enable anyone to easily and securely send and receive the first crypto asset - Bitcoin by building an intuitive platform that today offers 108 cryptocurrencies and provides end-to-end financial infrastructure for the crypto economy.

Unlike the traditional financial system relying on inflexible infrastructure, the crypto economy is grounded on software-based networks. They enable to not only effortlessly send and receive crypto assets along the same lines of information on the internet but also maneuver and program them.

Coinbase, in its prospectus, highlights that programmable crypto assets facilitate the creation of self-enforcing contracts based on blockchain networks, enabling parties to close deals with the exclusion of centralized intermediaries, such as banks or funds. As a result, the implementation of crypto assets to the mainstream can be a game-changer, translating into the total transformation of the whole financial system. 

According to CNBC, Ron Conway, a prominent tech investor, and early Coinbase investor, the crypto economy is “the next multitrillion-dollar opportunity in innovation.” He argued that even though the crypto economy is still in the early stages, it is booming with Coinbase as the Google for the crypto economy, opening this huge opportunity to consumers. 

As the positives of the technology outweigh the threats connected with crypto’s potential use by criminals, America should strive to be the leader in the crypto economy so as not to leave millions of jobs on the table, especially for China, from this trillion-dollar industry, Conway claimed.

The Crypto Market

Staggeringly successful Coinbase IPO represents increased validation of the nascent cryptocurrency market sector which wasn’t taken seriously by some retail investors and financial institutions.  Recently, there have been more and more signs of institutional and mainstream adoption of cryptocurrencies.

Not only companies like Tesla, but financial institutions such as Mastercard, PayPal, Morgan Stanley, and Square start to invest in or offer services based on cryptocurrencies. Tesla bought $1.5 billion of bitcoin and accepts bitcoin as payment for its cars, while, according to CNBC, Morgan Stanley, as the first U.S. big investment bank, gives some of its wealthy clients, with at least $2 million in assets, access to cryptocurrency. Additionally, while Mastercard plans to bring some cryptocurrencies onto its network this year, PayPal has already entered the crypto market and allows its users to buy and sell bitcoin, using their PayPal accounts. 

According to Rod Alexander, Media Director IOHK, in his SkyNews interview said, “It confirms that this industry sector is here to stay but it also concretely demonstrates consumer-level confidence in cryptocurrencies.

As more and more clients put firms under enormous pressure, demanding higher exposure to the cryptocurrency market, cryptocurrencies, especially bitcoin, are gaining more and more acceptance and validation as an asset class. The Coinbase blockbuster IPO represents the transformation of investors’ perception of the cryptocurrencies, which started as dodgy nonexistent, almost magical internet money and now are gaining validation from global financial services firms.

According to Dan Ives, Wedbush analyst, "Coinbase is a foundational piece of the crypto ecosystem and is a barometer for the growing mainstream adoption of Bitcoin and crypto for the coming years," according to AP News. After the Coinbase IPO, which is a watershed moment for the crypto market, Wall Street analysts will be striving to evaluate how much investors believe in cryptocurrencies to predict the potential market highs."