Coinbase is expected to be made public through a direct box office listing, and investors are hailing it as a “cultivation” moment for the cryptocurrency industry.
The digital currency exchange could be valued at up to $ 100 billion, making it more valuable than major trading venue operators such as the Intercontinental Exchange and Nasdaq.
It comes as the prices of bitcoin and other virtual currencies have skyrocketed over the past year as investors tried to diversify their portfolios believing an increase in inflation would be approaching. Bitcoin hit a new record high of more than $ 64,000 on Wednesday and has doubled in value to date.
Coinbase’s public market debut is “potentially a core event for the crypto industry and will be something the laser will focus on on the street to measure investor appetite,” said Dan Ives, a technology analyst at Wedbush Securities.
“It’s going to legitimize a lot of what these companies are doing,” said Marcus Swanepoel, CEO of London-based cryptographic platform Luno, about Coinbase’s debut. “On the one hand, it will demonstrate the size of the industry and its growth.”
Coinbase is the largest cryptocurrency company that has been public to date. According to CoinMarketCap, it is the second largest digital asset exchange in the world, according to CoinMarketCap, and has been credited with incorporating cryptography into the mainstream with its easy-to-use application.
But there are a number of risks ahead. Cryptocurrencies are notorious for their incredibly volatile price movements, and skeptics think it may be in a massive market bubble that will likely explode at some point. Meanwhile, global regulators are increasingly trying to subject cryptography to its oversight, even the government of India wants to ban digital currencies.
Volatility
Coinbase estimates that it earned revenue of $ 1.8 billion in the first quarter of 2021, an increase of 844% compared to the $ 190.6 million it generated in the same period last year. This was largely thanks to the huge price jumps of digital currencies like bitcoin and ether.
Since Coinbase’s business is strongly tied to the performance of major cryptocurrencies, there is a risk that the momentum could shift elsewhere if there is a significant setback in the market.
“Cryptocurrency companies will have to figure out how to diversify their revenue streams in the end,” said Hunter Merghart, a former Coinbase executive who is now U.S. chief for cryptocurrency exchange Bitstamp, based in Luxembourg .
“I think right now we are still very much in the investment phase and the global cryptocurrency will continue to grow.”
Bitcoin rose sharply to nearly $ 20,000 at the end of 2017, before falling to nearly $ 3,000 the following year. This price volatility has been a key criticism by Bitcoin detractors, who say it fails in key currency testing, such as acting as a means of exchanging or storing value.
However, investors in cryptography believe that such a precipitous fall in price, known in the industry as “crypto winter”, is unlikely in the near future. They see bitcoin as a kind of “digital gold” that does not correlate with other assets and can serve as protection against rising inflation.
“There have been many rises in the price of bitcoin over the last ten years,” Swanepoel said. “When it goes down, it sets a new baseline and growth continues on that new baseline.”
“In fact, I think the baseline will be significantly higher in this cycle,” he added. “If we look at commodity markets, they have normal cycles and then they have ‘super cycles.’ I suspect it’s a super cycle for cryptography. It can accelerate a lot longer now.”
Regulation
Earlier this year, U.S. Treasury Secretary Janet Yellen warned at her confirmation hearing that bitcoin and other cryptocurrencies are used primarily for illicit activities and that the government may have to “reduce” its use.
Coinbase says it is regulated and has partnerships with several banks. But he warned in his pamphlet that negative changes in regulations could “negatively affect” his financial situation.
Before the end of former President Donald Trump’s term, the Treasury Department proposed a rule that would require financial services companies to register the identities of cryptocurrency holders. This proved controversial with many cryptographic companies.
“Regulatory risk is high because cryptographic platforms are not currently subject to the same rules as traditional exchange or trading platforms,” said Stéphane Renevier, an analyst at financial education platform Finimize.
“Some of Coinbase’s activities (such as some of its core brokerage services and the use of its own capital for trading) could be subject to tighter regulatory oversight in the future,” he added. “Because the regulatory landscape is evolving very rapidly, the company is always at risk of a change of state, which could affect some of its most profitable activities.”
Jesse Powell, CEO of Coinbase rival Kraken, told CNBC he believes “there could be some repression” against cryptocurrencies.
“The Crypto Technology Giant”
Garry Tan, founder of venture capital firm Initialized and first investor at Coinbase, said the cryptocurrency market was still in its infancy.
“We’re not there yet,” he told CNBC. “We’re still in the early innings, but it’s no longer crazy.”
But Tan and other Coinbase bulls say the company has created a competitive “ditch” around its business that should allow it to thrive even with the emergence of new regulations.
“Coinbase is like the tech giant Crypto,” Tan added. Coinbase (debut), which exists as one of the cornerstone technology companies in Silicon Valley, is very powerful because it means that just as the personal computer revolution needed Apple and Microsoft, the cryptographic revolution needed Coinbase “.
Cryptography industry experts say Coinbase is just one part of the story. There are other emerging trends in the market, such as digital collectibles and so-called decentralized financing, which aims to recreate traditional financial products without intermediaries such as banks. In addition, Coinbase may face more intense competition from rivals such as Binance and Kraken, the latter of which is weighing its own share for next year.