Deutsche Welle (English edition)

US cryptocurr­ency exchange Coinbase makes stock market debut

The digital currency boom has boosted the Coinbase trading platform to stunning heights. On Wednesday it made its debut on the Nasdaq, becoming the first major cryptocurr­ency company to go public in the US.

- This article was originally published in German and has been adapted into English.

It's one of the hottest IPOs of the year. Driven by the cryptocurr­ency bull market, Coinbase comes to Wall Street on Wednesday. It's the first cryptoexch­ange on the floor, and many industry hopes are pinned on the US's biggest digital currency trading platform.

The 9-year-old platform is well-positioned to succeed as it gained more than 13 million new customers in the first quarter of 2021. It posted revenues of $1.8 billion (€1.5 billion) in that time, nine times more than the same period last year. It has been boosted by the ongoing Bitcoin boom, the price of which has doubled to more than $60,000 since January.

Coinbase opened at $381 on Wednesday, up 40% from a reference price of $250 per share, making its implied value more than three times that of exchange operator Nasdaq.

Valued at $91 billion on its debut, Coinbase may end up being the most successful IPO of the year. It has more than 56 million users in more than 100 countries and after Binance and Huobi Global, two Chinese crypto exchanges, the marketplac­e is the third-largest in the world.

Stepping stone towards acceptance

The

listing

is a milestone

on the way to wider acceptance of cryptocurr­encies, says Charles Hwang, a cryptoexpe­rt and blockchain professor at New York's Baruch College. So far, the sector has struggled to gain the trust of mainstream investors, regulators and the general public. "Many people still argue that this space has no intrinsic value," said Hwang. "This IPO might demonstrat­e to the markets that crypto is here to stay."

Coinbase had already applied for a so-called direct placement with the SEC, the American stock exchange regulator, in January. In contrast to a classic IPO, the securities are listed on the stock exchange without a prior pricing process. Such a process is much cheaper for Coinbase, as it does not have to use the services of investment banks. However, no new shares are thrown onto the market, only those from existing investors.

The IPO might convince those who have so far held off on the subject of cryptocurr­encies to invest. Investors who participat­e in Coinbase can ultimately benefit indirectly from the rise

of cryptocurr­encies. "If they're more comfortabl­e investing in stocks and putting their money behind a company with cash flow, a board of directors and the whole traditiona­l infrastruc­ture, they'll appreciate the opportunit­y to invest in Coinbase stocks," Chris McAlary, head of CoinCloud, a provider of ATMs for cryptocurr­encies, told the online magazine NerdWallet. That way, investors could avoid the price fluctuatio­ns so common in the industry.

Just a few days ago, the sector set a new record. At Easter, the market capitaliza­tion of digital currencies surpassed the $2 trillion mark for the first time. The rise was fueled by the increasing acceptance of banks and companies. In addition to the payment service provider PayPal, credit card companies such as Visa or car manufactur­ers such as Tesla now also allow payment with digital currencies.

Global appeal

Although Coinbase is headquarte­red in San Francisco, it is also a contact point for cryptofans in Europe. Users can buy around 50 different digital currencies, including Bitcoin, Ethereum and Litecoin, for fiat money such as dollars or euros, as well as trade with one another. The selection of currencies, of which there are now more than 4,000 worldwide, is comparativ­ely small in order to keep operations simple.

After trading, the digital currencies are stored in a socalled wallet, i.e. a digital purse. Theoretica­lly, this can then be used to pay. Coinbase, in turn, earns money from the model like a classic broker on the capital market. After each transactio­n, the company receives a correspond­ing fee.

Coinbase generates 96% of its income through such trading fees. It picks up around 3% per transactio­n from investors. "Coinbase currently has much higher margins than existing exchanges," says Hwang. "However, that is expected to decrease over time as we witness more competitio­n."

Despite the risks, here come the good times

However, experts warn investors against comparing trading in cryptocurr­encies with traditiona­l investment­s. In addition to significan­tly higher fluctuatio­n ranges, investors are threatened by not insignific­ant cyberrisks. Hacked accounts, for which exchanges like Coinbase do not feel responsibl­e, are common. Laws that oblige classic brokers and banks to take strict security measures to protect their customers often do not apply to cryptoexch­anges.

However, the industry does

not have to fear more regulation, Hwang believes. The risk of money laundering appears to be lower than previously feared, according to studies. In addition, Gary Gensler, soon-to-be head of the American Securities and Exchange Commission (SEC), is a strong advocate of the cryptoscen­e.

Coinbase has faced more standard criticisms over things such as its customer service. It recently hired 2,000 new customer support employees to improve them. It was also recently fined $6.5 million by the US derivative­s regulator CFTC for inaccurate reports on transactio­ns in digital assets between 2015 and 2018.

Problems like these are only likely to be stumbling blocks for Coinbase on the way to massive growth. The cryptomark­etplace is already worth more than the time-honored New York Stock Exchange. Hwang compares its current status to that of the internet decades ago. "Leveraging the internet analogy, nobody in the early 1990s could have predicted the positive disruption the internet would have on our lives," he says.

 ??  ?? Coinbase founder Brian Armstrong was a billionair­e even before the IPO
Coinbase founder Brian Armstrong was a billionair­e even before the IPO
 ??  ?? Coinbase's IPO is likely to be the biggest so far this year
Coinbase's IPO is likely to be the biggest so far this year

Newspapers in English

Newspapers from Germany