Timing does not favour Coinbase

Coinbase will be a stock riding a runaway train. The US cryptocurrency platform wants investors to think long term about the prospects for a global “open financial system”. Most will be unable to tear their eyes away from wild, short-term price swings in bitcoin.

This has its benefits. Coinbase, which has filed for a US direct listing, makes most of its money from commissions on crypto trades. Sales more than doubled to $1.3bn last year. The company has swung from a loss to net income of $322m as crypto prices jumped.

But the company has given no detail on the financial impact of the 2018 bitcoin price crash. Will Coinbase’s 2.8-million active retail users and 7,000 institutions hang on if there is another protracted price fall?

Coinbase was valued at $8bn in a 2018 private funding round and $100bn in a recent private share sale, according to Axios. That rise looks remarkably similar to the increase in bitcoin’s price from less than $5,000 to more than $50,000 this year.

The rally is hard to justify. Bitcoin has not become a widely used currency — nor is the US likely to countenance that. It offers investors no yield and volatility remains high.

Prospective investors in Coinbase should keep this in mind. Its listing will take cryptocurrencies further towards the financial mainstream. But risk factors are unusually numerous, including the volatility of crypto assets and regulatory enforcement.

Both threats are widely known. Another risk factor in the listing document deserves more attention. Vaccination campaigns and the reopening of sectors of the economy is raising yields in safe assets such as treasuries. Risky trades may become less attractive. Coinbase might be about to go public just as the incentive to trade cryptocurrencies is undermined. London, February 25

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