Coinbase appeared headed for a valuation of $100 billion or more as analysts and onlookers awaited the trading debut of shares in the leading U.S. cryptocurrency exchange.
While historical experience with such direct listings suggested that trading might not go live until later in the day, financial news services were reporting early indications of the pricing.
“The price of COIN will be very volatile," said James Angel, a finance professor at Georgetown University who specializes in financial-market structure. "We can expect it to fluctuate along with the prices of cryptocurrencies. Investors should buckle up their seatbelts and expect a wild ride.”
Coinbase, which has no official headquarters, opted to avoid an initial public offering (IPO) and instead directly list its shares on the Nasdaq stock exchange, without relying on Wall Street investment banks serving as underwriters to set the pricing.
“The reason we're doing a direct listing is that it's going to get all market participants," Coinbase CFO Alesia Haas told CoinDesk in an interview. "We're not allocating shares to just 10 institutions. This is going to be a robust, deep price discovery. And we're excited to see where that market ends up.”
Such offerings are unusual, and market makers have typically needed hours to determine the appropriate opening price. When Slack, the business communication software, went public via a direct listing in June 2019, it took about two and a half hours to start trading. "The stock opened just after noon," according to a Wall Street Journal story at the time.
The Coinbase listing is shaping up as a watershed moment for the cryptocurrency industry, with the biggest U.S. exchange now getting exposure to mainstream stock-market investors. The event has also been tabbed as a catalyst that might drive further adoption of digital assets.
Prices for bitcoin, the biggest cryptocurrency by market value, soared Wednesday to a new all-time high above $64,000, settling back to about $63,500 as of press time. Ether, the native cryptocurrency of the Ethereum blockchain and the second-biggest overall, also rose to a record price of around $2,400.
"COIN listing is the validation of an investment thesis that crypto is not a niche market anymore," Campbell Harvey, a professor of international business at Duke University, told CoinDesk. "It is a new mainstream market.”
Another venue, FTX, which recently signed a $135 million deal to take over the naming rights of the American Airlines Arena, the home court of professional basketball's Miami Heat, has listed a "pre-IPO contract" to track Coinbase shares. It's currently signaling a share price of $432.
The latest share-price indication, assuming 199.2 million shares outstanding, would imply a market capitalization for Coinbase of about $76 billion – roughly the same amount as BP, the oil company, and General Motors, the automaker. Using the fully diluted share count of 261.3 million, the implied market capitalization would be about $99 billion. (Coinbase is only listing its 130.7 million of Class A shares.)
Given how that's almost $100 below the $343.58 the shares had been trading at in the private secondary market, it's almost certain that the opening price for the Coinbase shares will be far above $250 after buyers and sellers eventually assign a value to the shares of the leading cryptocurrency exchange.
As Digital Currency Group CEO Barry Silbert succinctly put it in a tweet: "I will not be selling any of my Coinbase stock to you at $250. Try again." DCG, the world's largest digital asset manager, is the parent of CoinDesk.
Haas, the Coinbase CFO, said Nasdaq set the reference price and that the company wasn't involved.
“I learned about the reference price 10 minutes before the market learned about the reference price," said Haas. “The company is sort of, frankly, a little bit ignoring it. Because it's not an indication of anything other than what is needed to open a system.”
Lisa Ellis, an analyst for the brokerage firm MoffettNathanson, published a report Tuesday recommending COIN shares a "buy" with a one-year price target of $600 a share.
"Coinbase has enormous scarcity value, as a one-of-a-kind, pure expression of the secular cryptocurrency trend," Ellis wrote. "We are bullish on cryptocurrency technology. While still nascent, we believe it is one of the most disruptive technology innovations in decades."
Given COIN's conservative reference price, it may take even longer for buyers and sellers to agree on an opening price.
This could mean traders might not see robust trading in COIN until well into the afternoon even though U.S. stock markets opened at 9:30 a.m. ET.
The exchange reported $1.8 billion in revenue for the quarter (versus $1.27 billion for the full year 2020). Coinbase gave no revenue guidance (as a publicly traded company normally would), but instead gave scenarios for user growth depending on different outcomes in the crypto market. It reported 6.1 million active users in the first quarter, more than double the number during the final quarter of 2020.
Some industry analysts were skeptical of Coinbase's sky-high valuation.
"It does seem difficult to justify these numbers," Mati Greenspan, founder of the foreign-exchange and cryptocurrency analysis firm Quantum Economics. "There is the old saying that in a gold rush, the ones who make the most money are the guys selling picks and shovels. This certainly applies to Coinbase."
Coinbase requires investors to not only have a view on the future of bitcoin but also on other crypto exchanges and decentralized exchanges that will be competing with it for market share, Duke’s Harvey said. (The Duke University endowment was an early investor in Coinbase.)
“To simply extrapolate from past results ignores the competition,” Harvey said. “Most people are operating in the world of centralized finance and DeFi is not just a novel cryptocurrency. It’s reinventing financial infrastructure.”
While many equity analysts are looking at how Coinbase is turning its large pool of users into active users that trade on the app every month, some have said that COIN could end up trading like a proxy bitcoin ETF, as some investors are now possibly using MicroStrategy (MSTR) shares.
It also means that pension funds and endowments will be looking at other early-stage private companies in the crypto space that have the potential to follow Coinbase’s growth history, Harvey added.
UPDATE (April 14, 13:40 UTC): Adds comment from Coinbase CFO Alesia Haas.
UPDATE (April 14, 14:47 UTC): Adds indicated trading price.
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