As US-based major crypto exchange Coinbase going public in two days, many industry insiders see it as a bullish event for a wider crypto space, but also one that may eventually lead more people into decentralized finance (DeFi). Meanwhile, an investment research firm placed the exchange’s valuation more than 80% lower than it’s expected to be.
As reported, Coinbase is set for a direct listing on Nasdaq under the symbol COIN on April 14.
Because volume and price tend to go hand-in-hand, argued Bloomberg, Coinbase’s transaction revenue, its largest segment, “could remain susceptible to cryptocurrency market gyrations.” Kevin Kelly, Global Head of Macro Strategy at crypto research firm Delphi Digital, warned that Coinbase’s first week of trading could be very volatile.
“Coinbase’s stock price will provide another gauge of institutional interest and sentiment towards crypto at large. However, COIN will also be subject to market risk that may or may not impact crypto asset prices, so it won’t serve as a perfect proxy,” he wrote in a report last Friday.
There is a number of potential results that industry insiders see coming out of the exchange’s move to go public, but many seem to agree that, as Kadan Stadelmann, Chief Technology Officer (CTO) of blockchain solutions provider Komodo (KMD), said in an emailed commentary, “Coinbase is an important gateway to getting started in the crypto sector.”
Samantha Yap, Founder and CEO at PR agency specializing in crypto, blockchain, and fintech YAP Global, opined that this listing is going to further build credibility and legitimacy for the crypto markets which have already seen “huge institutional interest and flows” since the year began.
Of a similar opinion is Emiliano Grodzki, CEO of Bitcoin mining operation Bitfarms, stating that crypto is not a new thing anymore, but “the hot new asset class for equities,” adding:
“The Coinbase direct listing is just the latest demonstration of an explosion in legitimacy and trust in the crypto sector as a whole, among both institutional and retail investors.”
Gunnar Jaerv, Chief Operating Officer (COO) of digital asset custodian First Digital Trust, argues that Coinbase’s massive valuation and growth of user base and revenue since last year prove that “crypto is gaining crazy momentum.” He sees the listing as “a huge step” for the industry from the points of view of mainstream adoption and regulations, “signifying the acceptance of crypto business in traditional finance” (TradFi).
There seems to be a general agreement among insiders that the bridge between TradFi and crypto, including DeFi, is getting stronger.
Leo Cheng, Co-Founder and Project Lead at decentralized lending protocol C.R.E.A.M. Finance (CREAM), said that Coinbase’s success and its direct listing will “bring on the next wave of new users” to crypto – but will also “have an enormous impact on the entire digital asset industry by opening the gate to further Wall Street and institutional investment and confirming that the future of finance is decentralized.”
Meanwhile, Kadan Stadelmann argued that “going public is stepping into the big leagues.” The CTO said that crypto is becoming a part of traditional finance, and a conversation topic from Wall Street to Main Street – a level of adoption that “seemed like a dream scenario just a year ago.”
The opinion that this is a new development seems to be supported by other insiders as well. James Anderson, CEO of RioDeFi, an ecosystem of interoperable financial products that bridge TradFi and DeFi, argued that the crypto growth and expansion had always “been at odds with the interests of traditional financial systems.” But in 2020, the TradFi vs. DeFi narrative began to shift dramatically, said Anderson, when major investment and financial institutions announced large acquisitions of bitcoin (BTC) and other crypto.
“The Coinbase direct listing unites these two sides of finance in the success of this licensed and regulated company. Traditional investors who purchase Coinbase stock will indirectly speculate on the crypto market and similarly, crypto traders who own Coinbase stocks will have a vested interest in the success of the company,” Anderson said.
“This is real innovation in financial services,” says @amybutte on @coinbase direct listing. “Institutions even in… https://t.co/T7Ikzma0sS
On the other hand
The Q1 results and the listing of Coinbase are positive for crypto mass adoption, and more traditional finance companies are incorporating crypto, said Blake Ho, COO at DeFi aggregator Furucombo. “On the other hand,” with the increased competition in bridging crypto to the public, as well as the unpredictability of crypto transaction volumes (which is Coinbase’s main revenue), “DeFi access could make Coinbase stand out,” Ho said.
Coinbase just recently announced that they joined the Chicago DeFi Alliance.
But it also remains to be seen what kind of effects the listing will have on the crypto industry: positive or negative.
On one hand, COIN listing will be positive for mainstream adoption and industry growth, particularly among retail investors, said Alberto Jauregui, Growth Lead of Pocket Network, a blockchain data ecosystem for web3 applications.
“One the other hand, the revenue earned and capital raised will let Coinbase continue to consolidate influence over the industry through acquisitions, expansion of product offers, and domination of validator power in proof of stake blockchains, for example Cosmos or Tezos,” argued Jauregui. “We are big fans of what Coinbase has done to date, but we worry about the centralizing effects of the concentration of users on a single platform, negating the true benefits of decentralization.”
Also, Samantha Yap argues that, once the celebrations settle and the mainstream awareness of crypto grows, “eyes will turn to the alternative burgeoning” DeFi industry, with structures like DAOs (decentralized autonomous organizations) becoming common knowledge.
Valuation in question
Coinbase is not the only exchange preparing for a direct listing.
“Other exchanges following in Coinbase’s footsteps are entirely based on their readiness to go public. This will pave the way for Coinbase’s competitors to join the IPO movement. Kraken will most likely be next,” Gunnar Jaerv said.
Jesse Powell, CEO of Kraken, said recently that the company is on track to go public next year, “probably second half.”
Meanwhile, some are doubting that Coinbase will indeed meet the high expected valuation.
Investment research firm New Constructs wrote that “even though Coinbase’s revenue surged over the past 12 months, the company has little-to-no-chance of meeting the future profit expectations that are baked into its ridiculously high expected valuation of [USD] 100 billion.” This implies that its revenue will be 1.5x the combined 2020 revenues of two of the most established exchanges in the marketplace, Nasdaq and Intercontinental Exchange (ICE) (the owner of the New York Stock Exchange) they said, adding:
“Our calculations suggest Coinbase’s valuation should be closer to [USD] 18.9 billion – an 81% decrease from the [USD] 100 billion expected valuation.”
Meanwhile, Delphi Digital calculates that Coinbase could potentially be valued between USD 160bn – USD 230bn if its stock can command above-average price multiples, “which isn’t too far-fetched given current market conditions.”
As reported, according to Coinbase’s best scenario, the annual average number of their monthly transacting users is expected to grow by 15% and reach 7m this year.
And speaking of narratives, as reported, Vijay Boyapati, the author of ‘The Bullish Case for Bitcoin’ and Senior Software Engineer at Peach, said that the narrative that Coinbase’s listing is helping the price of BTC increase is false. He also argued that the company would’ve been a lot bigger if they held their profits in BTC instead of USD.
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(Updated at 16:09 UTC with a video.)