In some ways, the Coinbase exchange is the poster child for the crypto industry. It has embraced – not fought – regulation, which sets it apart from most cryptocurrency exchanges while the company’s trading app is praised for its ease of use. When JPMorgan Chase decided to extend traditional banking services to crypto companies in the US earlier this year – a precedent-setting move – it started with Coinbase and Gemini, another US-registered exchange.
So last week’s report that Coinbase filed a draft registration for an initial public offering with the U.S. Securities and Exchange Commission wasn’t really surprising, but it’s big news nonetheless – and not just because the company Messari research declared the 35 million -customer company could be priced at $ 28 billion.
“It’s a huge event,” Vladimir Vishnevskiy, director and co-founder of Swiss wealth management firm St Gotthard Fund Management AG, told Cointelegraph, and not only in the US but also in Europe, because “the IPO will deliver a marker of how marketers are prepared to price such firms. ”
Stephen McKeon, professor of finance at the University of Oregon and partner at Collab + Currency, told Cointelegraph: “Coinbase will represent the first crypto-native corporation to be listed on a large US stock exchange,” and as such, its IPO “a significant event for the industry” – assuming, of course, that the offering is going ahead as planned.
Meanwhile, Edward Moya, senior market analyst at forex trading company Oanda, told Cointelegraph: “It looks perfectly timed following the strong developments with Bitcoin’s mainstream acceptance, high demand for cryptocurrencies and institutional interest increasing. ”
That said, Coinbase, like other so-called unicorns, will now face “a lot of scrutiny,” Moya added, simply because the IPO market has become so popular lately. Indeed, some are already calling the market “Tech Bubble 2.0” and making comparisons with the internet listings of internet companies during the dot.com bubble in the late 1990s.
“There’s a lot of hot money out there in the markets right now,” Vishnevskiy confirmed, and given the strong appetite for IPOs, he expected the offer to be oversubscribed. According to McKeon, “The premiums on Grayscale and Bitwise funds suggest a tremendous appetite for exposure to crypto within equity markets, which should foster a warm reception for Coinbase stock.” He added:
“IPO activity is cyclical, it oscillates between hot and cold markets. We are currently in the midst of one of the hottest IPO markets in recent years. Along with Bitcoin at all-time highs, it makes this a very timely time for Coinbase to go public. “
Due to Covid-19 related stimulus efforts, the global economy is full of liquidity, with few places to invest. Bond yields are almost zero. In this environment, public demand for equity pledges at innovative high-growth technology companies like Coinbase is strong.
Concerns over service cuts
Is there anything that could derail the process? “If there is some unforeseen circumstance, such as widespread media coverage of a new (or rolling out) infection, that could make market observers extremely risky, making them less likely to put their money in an IPO,” Charles Bovaird, vice president of content at Quantum Economics, told Cointelegraph.
Moreover, Coinbase has repeatedly declined during periods of high demand, as Bovaird recalled. Back in 2017, when the SEC rejected Winklevoss’ Bitcoin (BTC) exchange-traded fund and BTC prices crashed thereafter, many investors, Bovaird included, were unable to trade through Coinbase. That could take into account investor assessment during an IPO, as capacity issues still make the exchange in 2020.
In addition, “Coinbase has a public image problem that they need to clean up and may not be easy to do,” added Moya. The New York Times reported in November that some of Coinbase’s black workers had raised concerns about discriminatory treatment, and during 2020, workers were also “discouraged from discussing cases or politics internally and from taking on activist cases at work ”- all of this could raise some leadership concerns in the minds of potential investors. Moya told Cointelegraph:
“Next year, companies will need to embrace diversity and inclusion and until Coinbase can do so, they may miss out on making the most of this opportunity.”
Vishnevskiy disagreed that Coinbase had an image problem and said the company would be considered one of the “safer crypto dramas” if the IPO goes through. “European interest is likely to be more calm than in the US,” which is the norm given the more conservative investment trends of European investors. “Nevertheless, I can confirm that I already know a couple of family offices in Europe that are interested in getting an allocation,” he told Cointelgraph.
Bovaird, as an investor, added that he would not worry about staffing policies or whether employees are allowed to have political conversations, he added. “I’m worried if I can’t use their website to buy (or sell) Bitcoin when I want to.” Still, even if institutional investors prefer a laser-focused CEO like Brian Armstrong of Coinbase, retail investors, who have been a major factor in the current IPO “frenzy” might think different.
Bring in new entrants
Would a publicly-held Coinbase drive more users to the cryptoverse? “This could trigger the adoption of crypto,” John Griffin, who holds the James A. Elkins centenary chair in finance at the University of Texas, told Cointelegraph, because companies are surviving the IPO process – with its months of scrutiny from investor regulators, analysts and institutions – often coming up with battered proof and safer investment, at least in the minds of some investors. By comparison, “Look at WeWork,” Griffin offered, “he couldn’t survive public list scrutiny and decay.”
Digital assets, as well as IPOs, have been performing at almost record levels in 2020, and “this event could bring a number of new entrants into the space focused solely on IPOs previously, ”said Vishnevskiy. According to McKeon, the risk appetite for the two areas is very similar, adding: “Coinbase’s IPO would further validate the cryptocurrency asset class for the public, which is likely to lead to further adoption.” However, a successful Coinbase IPO should not be expected to solve all industry problems. As Griffin told Cointelegraph:
“This is definitely a step towards legalizing crypto and moving into the mainstream. A big issue is that while exchanges like Coinbase are under regulatory scrutiny, [other] price-driven exchanges may not be scrutinized. This means that the market remains open to manipulation. ”
On the whole, however, most of the close observers regarded Coinbase’s IPO as a signal achievement for the cryptocurrency and blockchain industry. One remembers the failure of other crypto-native listings like Bitmain and BitConnect as well as Ripple’s long-awaited but still unseen IPO. “Some have failed for inexplicable reasons, others because of a difficult regulatory environment in the United States,” said Moya, who added that anything driving the interest in crypto was a welcome development for the industry.
The IPO is a major event, and according to Griffin, “showing Coinbase’s path to working within the regulatory process is economically profitable.” Meanwhile, John Sedunov, associate professor of finance at Villanova University, told Cointelegraph:
“Coinbase’s IPO would signal a further move into the mainstream for cryptocurrency. I don’t think this will push it across the finish line, but it will help continue the process of making cryptocurrency more accessible to investors and potential users. “