Coinbase Value Soars on Market Debut

The price of Coinbase shares swung wildly on the day of their market debut. The listing seems to indicate that investors are eager to step into the digital currency market.

Shares of Coinbase opened at $381. This price was 52 percent over the reference price set earlier by NASDAQ. During what turned out to be a volatile trading day, Coinbase shares swung from a low of $310 through to a high of $429, showing how unpredictable crypto prices are. The stock closed at $328.28. Counting all the outstanding shares, at the close the company was worth over $87 billion, a far cry from its final valuation of $8 billion as a private company.

Coinbase is Less Than 10 Years Old

Coinbase, headquartered in San Francisco, was founded in 2012. The company provides individuals and companies the opportunity to purchase or sell digital currencies, including popular cryptocurrency’s Bitcoin, and Ether. The company makes money by charging a transaction fee. The boom in crypto activity during the last year has driven the prices to record highs.

Amid the excitement of the Coinbase market listing, Bitcoin’s price surged to a record $64,000, more than doubling in value since the beginning of 2021. Prices dropped somewhat yesterday, to a little under $62,000.

Unlike many other start-ups that go public, Coinbase is profitable. In the first quarter of this year, it is estimated that, on $1.8 billion in revenue, the company made between $730 and $800 million. However, the financial prospectus did warn that financial performance was closely tied to the very volatile price of cryptocurrencies.

The recent listing has made the co-founder and CEO, Brian Armstrong, one of the world’s richest individuals. Armstrong, who owns approximately 21 percent of Coinbase is an ex Airbnb software engineer. His holding of 40 million shares makes his stake in the company worth approximately $13 billion.

Direct Listing

Coinbase chose to go public via a direct listing. A direct listing is unusual as no new shares are issued or sold, they simply start the trading process. Never before has a company the size of Coinbase entered the market in this manner, although the direct listing approach is popular among well-funded Silicon Valley startups.

Direct listings do not have periods preventing insiders from selling shares for the first half-year.

By listing on Nasdaq, Coinbase is providing investors who may have an interest in digital currencies, but are reluctant to purchase them directly, an indirect avenue into the market. The initial financial prospectus had a glossary of specific terms used in the crypto business, including slang such as “hodi.” The term hodi refers to holding crypto investments even when prices drop.

Why the Coinbase Debut Matters

Coinbase is the first major crypto business to trade on a U.S. bourse. The size indicates that the stock will most likely be held by index funds, hence providing investors indirect exposure to the rapidly changing world of crypto. The chief executive of Coinbase, Brian Armstrong, was quoted as saying that hopefully the public debut of Coinbase as a direct listing will be seen as a landmark decision for crypto.

At $86 billion, the market value of Coinbase is greater than the value of the exchanges its shares will trade on. The market capitalization of Nasdaq is $26 billion. ICE, the parent company of the New York Stock Exchange is $67 billion.

Coinbase is a profitable company, last year taking in $322 million. It is currently estimated that in the first quarter of 2021, the company will take $800 million. It also generated considerably more trading revenue than did the Nasdaq, 0.6 percent to Nasdaq’s 0.009 percent.

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Author: Jason Donaldson