Valued at around $100 billion, the cryptocurrency exchange brings an air of high-level professionalism into a space that is often thought to be similar to the Wild West. From this moment on, cryptocurrency will no longer be thought of as a fringe investment.
On April 14, Coinbase shares opened at $381 before rising as high as $429.54—$112bn market valuation. By the end of the first day’s trading the price had settled at $328.28, making the company worth more than financial giants such as HSBC and Barclays. An incredible achievement.
Founded in 2012 by CEO Brian Armstrong, Coinbase helps customers to buy, sell, and store a range of cryptocurrencies. As the sector grew in popularity the company became an industry leader servicing as many as 35 million customers across more than 100 countries. Currently, more than $25 billion in assets is stored on the platform.
After going public, Armstrong’s approx. 40 million shares are now valued at around $16 billion making him one of the richest people in the world.
DPO Not IPO
Coinbase bucked the trend by going for a direct public offering (DPO) instead of an initial public offering (IPO). The difference being that a DPO doesn’t raise funds by selling new shares, allowing the stakeholders to sell the shares at a market-driven price.The company looks happy in its role as leaders, saying cryptocurrency could one day be: “as revolutionary and widely adopted as the internet.”
After a successful week there is now a discussion about adding another 100 new crypto assets onto the exchange. Currently there is only support for 90 out of the more than 4,000 cryptocurrencies available.
For now, the fate of Coinbase looks to be inexorably entwined with that of bitcoin. The firm’s performance is subject to the extreme volatility of its valuations, as witnessed in 2019 when Coinbase posted a $30 million loss with bitcoin worth only $5,000-6,000.
Experts are already pointing out that bitcoin’s latest price decrease is the steepest fall since February. It could be possible that all the hype surrounding Coinbase going public has pushed prices to a currently unsustainable high and we could soon see some kind of hangover.
Bitcoin slid from a peak of $64,829.14 down to $53,371.20—losing almost 18% of its value.
Tight Margins
While the current paradigm is more than satisfactory for Coinbase, the future will see a much more competitive environment.Coinbase currently charges what is considered a wide spread as well as a trading fee. These are both unsustainably high but due to its position in the marketplace it can get away with this, for now.
As time goes by competitors will begin to fight for a piece of the action making it much tougher for Coinbase to operate at the same profit level. A similar change is currently underway in the stock trading sector. The days of exorbitant changes to buy and sell shares is coming to an end.
Other well-placed companies, such as Paypal, will be watching keenly in the knowledge that they already have much of the infrastructure in place to mount such a challenge.
In the coming months we can still expect Coinbase to be doing rather well, helping to bring more potential cryptocurrency enthusiasts into the space. We look forward to seeing how this all turns out.
