Everything you need to know about Coinbase’s stock market debut

15 Apr 2021

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From its unusual route to the stock market to the early investments that paid off, here’s your essential guide to Coinbase’s direct listing on Nasdaq and what it could mean for the future of cryptocurrency.

Wednesday (14 April) marked a watershed moment for the cryptocurrency market as Coinbase went public via a direct listing on Nasdaq.

The highly anticipated listing hit the highest of expectations, peaking at a valuation of more than $100bn.

Coinbase closed its first day of trading under the ticker symbol COIN at just over $328 and a valuation nearing $86bn.

Here’s the story behind the historic listing.

Not your average stock market listing

Coinbase decided not to go for a traditional initial public offering (IPO), which would involve engaging banks to underwrite the transaction. Instead, the company took the direct listing route to the stock market.

Other companies that have gone with a direct listing include Spotify, Slack, Palantir and Roblox. This meant Coinbase didn’t issue any new shares, but gave employees and early investors the opportunity to sell their shares at a price determined by the market.

Also unusual was Coinbase CEO Brian Armstrong appearing on Reddit for an ‘Ask Me Anything’ and the company announcing preliminary results for Q1 2021 right before the listing.

In its mandatory S-1 filing before listing, Coinbase revealed that it reached revenues of more than $1.2bn in 2020, securing a profit of $322m. This marked a dramatic turnaround from 2019, when the company made a loss of $30m on the back of $522m in revenue.

But even this was nothing compared to the first quarter of 2021, as the price of bitcoin continued to soar. Amid this rally, Coinbase reported Q1 revenues up 847pc to $1.8bn – surpassing its full-year revenue from 2020 in just three months.

How it started, how it’s going

Founded in San Francisco in 2012, Coinbase has grown to become the largest crypto exchange in the US. Its Q1 results revealed that the platform has 56m verified users, including 6.1m monthly transacting users.

Coinbase’s declared mission is to build the crytpo economy and, according to its regulatory filings, the company has an estimated $223bn in assets on its platform, representing an 11.3pc share of the crypto asset market.

A reference price of $250 per share was set by Nasdaq before the direct listing, valuing the company at around $65.3bn. It was suggested Coinbase would open as much as 40pc above this at $350 a share. Investors were expected to be bullish owing to Coinbase’s market-leading position and the skyrocketing price of bitcoin. (One day before Coinbase’s debut, bitcoin hit a new record price of $63,000.)

The most bullish forecasts saw the value of Coinbase hitting more than $100bn in its first day’s trading, while more conservative valuations ran as low as $18.9bn.

Indeed, it was the most optimistic analysts who proved correct. The share price opened at $381, valuing the company at $99bn. Throughout the day, the price hit highs above $400, going beyond that fabled $100bn valuation to more than $104bn. The lowest-priced shares sold at $310, and at no point did COIN trade at the reference price.

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CNBC reported a closing price of $328.28, valuing the company at $85.8bn.

What is Brian Armstrong now worth?

Ex-Airbnb software engineer Brian Armstrong teamed up with former Goldman Sachs trader Fred Ehrsam to found Coinbase so that people could easily buy and sell cryptocurrency.

According to Forbes, CEO Armstrong’s net worth before the direct listing was $6.5bn. According to NPR, his 21pc stake in Coinbase is worth around $13bn, which would now make him one of the richest people in the world.

Who else got rich?

The long-term backers of Coinbase have also done well out of the company’s dynamic stock market debut.

According to MarketWatch, venture capital firm Andreessen Horowitz was holding about 25pc of Class A shares and 14pc of Class B in Coinbase ahead of the direct listing. CNBC estimated these shares are now valued at around $9.7bn.

Andreessen Horowitz built up its stake in Coinbase by buying shares over the years from earlier investor Union Square Ventures.

Union Square Ventures was among the investors in Coinbase’s 2013 Series A round, investing at 20 cents a share. That stake is now worth $4.6bn, according to CNBC.

Ribbit Capital co-led the Series A investment round and is Coinbase’s third-biggest outside investor. Its 12m shares are reportedly worth $3.9bn now.

Other investors set to be counting their winnings from yesterday’s trading include Tiger Global, Institutional Venture Partners and DFJ Growth.

What does this mean for the future of crypto?

Coinbase’s listing on a traditional exchange, while somewhat ironic for a company involved in the disruption of traditional finance, is seen as a key milestone for the crypto industry.

While the move lends the crypto marketplace validity, it is still subject to massive volatility. Bitcoin is currently on a high, but it has also seen devastating lows. In February 2018, the price of bitcoin fell around 70pc and took other cryptocurrencies down with it. Data from the period suggested more than $550bn of the entire cryptocurrency market was wiped out in that month alone.

Coinbase earns the majority of its revenue from trading commissions, and the platform chiefly deals in bitcoin and ether cryptocurrencies. Like bitcoin, Ethereum’s price has surged in the past year.

Coinbase itself has said that its short-term performance is largely determined by these crypto prices, and has acknowledged the risk therein. The company could face severe setbacks if the price of either drops significantly. Reuters reports that Coinbase is set to increase the number of digital assets users can trade on its platform, which could be good for diversification but also mean further regulatory risk.

Coinbase’s move to the mainstream will likely bolster the growing appetite for crypto, but this is still a highly volatile asset subject to patchy regulation and limited widespread acceptance. The tide does seem to be turning with companies such as Tesla and banking giants such as Goldman Sachs and Morgan Stanley now investing in bitcoin. However, cryptocurrency’s ties to criminal activity and its lack of regulation remain huge hurdles to its legitimacy.

Elaine Burke is the editor of Silicon Republic

editorial@siliconrepublic.com