Crypto Exchange Coinbase Goes Public
Crypto Exchange Coinbase Goes Public
Cryptocurrency exchange Coinbase, a pioneer in the cryptocurrency space, has finally gone public. Its stock started trading on Wednesday at a valuation of nearly $100 billion, as the company taps into surging demand for Bitcoin and other cryptocurrencies.
The company has been on the cutting edge of the market’s boom, bringing in more than $1 billion in revenue last year and processing a record-breaking $13 billion worth of trades. And in the past quarter it earned $1.8 billion, fueled by a big jump in user volume and investor speculation.
Coinbase’s profitability is dependent on its transaction fees. While it has branched out to offer some other services, such as wallets and crypto commerce, these are mostly a sideline for the firm. It still keeps 96% of its revenue from trading transaction fees, a share that could shrink should new competitors enter the space or if investors decide to diversify their holdings.
Despite that, Coinbase has managed to become the largest crypto exchange in the US, with a monthly active user base of about 56 million people and a total volume of $335bn across its services. Its user base has expanded to include a wide range of institutional investors.
Users also use Coinbase’s services to buy and sell a range of other digital assets, including ethereum and litecoin. Its customer service is top-notch and its fees are relatively competitive, although they’re based on spreads, which depend on a number of factors such as location, payment method, order size and market conditions.
While Coinbase’s business model isn’t completely transparent, it has managed to stay afloat largely through the support of its customers and their demand for crypto assets. Retail traders have remained a big chunk of its client base, but it has also gained a lot of traction among the institutional investors that took advantage of the market’s rise in 2017.
Its financial performance is dependent on consumer interest and the price of cryptocurrencies. Its revenue soared in 2017, when the price of Bitcoin went through the roof, and that trend continues today.
However, that surge in price isn’t necessarily good news for the company. It means that transaction fees, which account for the majority of its revenues, are at risk of declining as the market becomes more regulated and competition increases.
A direct listing, a route for companies to list their shares directly on the public markets without involving an underwriter, is growing in popularity. That’s why it was an attractive choice for the company.
Direct listings are often favored by unicorns, or tech startups with more than $1bn in capital. They are gaining momentum in the wake of Spotify’s IPO three years ago and Palantir’s IPO last September.
The company’s biggest investors, who will benefit from the company’s IPO, include Andreessen Horowitz, Tiger Global, Ribbit Capital and Union Square Ventures, according to Coinbase’s SEC filing. Its largest individual investor is Brian Armstrong, who owns 39.6 million shares at Wednesday’s closing price of $354.
In addition to its exchange service, Coinbase has developed a wallet for users to store their digital assets. It has also launched an app that lets users pay for goods and services with a cryptocurrency.