What You Need to Know About The Latest Move of The Crypto Exchange Coinbase
US cryptocurrency exchange Coinbase moves to the stock market
Given the latest move of the US crypto exchange Coinbase. Many investors are already scratching their feet. You can find out what you need to know about the IPO. What it means, the predictions. Where the share is tradable, and whether it is worth buying in this article.
The universe of cryptocurrencies has reached the Stock Market.
On Wednesday, the largest US trading platform for cryptocurrencies started by directly listing on the US stock exchange market (Nasdaq). In this type of IPO, which Palantir and Spotify have previously chosen, no new shares are offered via a capital increase. Still, only shares from the holdings of the existing shareholders are sold. With Coinbase, a heavyweight is going public. The market value of the pioneer in buying and selling Bitcoin and other digital assets in the United States reached around 100 billion dollars when it went public. Then, the shares were quoted more than 50 per cent above the issue price.
The Timing Could Hardly be Better for Coinbase.
Given the cryptocurrency boom that has been going on for months. The trading platform was recently able to present remarkable business figures for the first quarter. The number of active users rose by 13 million to 56 million. Moreover, within the three months. Revenues were $ 1.8 billion, compared to $ 191 million in the same period last year. Coinbase estimates the profit for the months January to March 2021 at 730 to 800 million dollars – even at the lower end, that would be more than double the profit of the entire previous year.
The background to the latest business success is the upswing that Bitcoin prices and other cryptocurrencies have been experiencing for months. Driven by the increasing interest of hedge funds and institutional investors and promises from prominent addresses such as Tesla or PayPal, the price of the most important cryptocurrency, Bitcoin, for example, has increased ninefold to more than 60,000 dollars within twelve months.
So does the Coinbase share give investors an attractive and uncomplicated opportunity to invest in the crypto market and participate in possible further price increases for Bitcoin and Co? Anyone who accesses the paper should first take a closer look and know some imponderables. Here are the three most important ones:
Risk 1: Possible Price Drop for Bitcoin and Co
The strong price fluctuations in the market for cryptocurrencies are now legendary. The price increase of Bitcoin from around 7,000 dollars twelve months ago to currently more than 60,000 dollars speaks for itself. At the end of 2017, Bitcoin also skyrocketed to almost $ 20,000 – only to lose most of this value again within a few months.
The trading platform Coinbase makes a large part of its sales with fees that customers have to pay for buying and selling cryptocurrencies. According to the Wall Street Journal. These fees accounted for about 96 per cent of sales last year. Should Bitcoin or other cyber money lose its attractiveness again and trading activities slacken. This would be reflected directly in the company’s business figures. Not only in terms of sales but also in terms of profit.
Risk 2: Increasing Competition Between Trading Venues – Competition for Coinbase is Growing
Cryptocurrencies have become a popular form of alternative financial investment in recent years. But they are still far from being established with the mass of money investors worldwide. The market is still opening up new groups of customers. New players are also constantly pushing into the business. Competing with trading houses such as Coinbase.
Against this background, two developments are already foreseeable. On the one hand, as the market grows, it becomes more attractive for the discount provider. Who charge low fees and do their business above the masses. On the other hand, financial groups will also open up the business that already has a well-trained apparatus from other areas of the investment business that they can transfer to the crypto market at low cost.
For Coinbase, both means: the competition will get bigger, and the fee level on the crypto market will decrease. The latter, in particular, could hit Coinbase hard. Also, according to the “Wall Street Journal”, the company is currently by some distance one of the most expensive providers in the US market. Therefore, with trading fees that are more than double those of the competition.
Risk 3: Possibly Imminent Regulation
Currently, crypto traders such as Coinbase or US competitor Kraken are still operating outside of the strict financial regulations, that apply to stock exchanges such as the New York Stock Exchange. As the “Financial Times” recently analyzed. This is not least one of the reasons why Coinbase and Co can achieve such exorbitant sales and profits in the current market environment.
Conversely, this means: Should the regulatory situation of the trading venues change – and there is currently a lot of evidence that this will happen sooner or later if the market continues to grow – then the basis for their business activities will also change fundamentally. Companies may then have to give up some of their most profitable businesses. Or operate at significantly higher costs. Investors should keep an eye on this risk. After all, Coinbase itself indicates this risk in its stock exchange documents in the “Risk Factors” section.
Pay Attention to The Coinbase Evaluation
None of these are knock-out criteria for investment in Coinbase. The company can react to all of the developments mentioned. Therefore, adapt its business model, cost structures, and prices. As one of the early players in a rapidly growing market like that of cryptocurrencies. Coinbase has very good prospects of success.
However: A key figure that is often used to compare companies and their shares on the stock exchange is the price-earnings ratio (P / E). As a rule of thumb. The higher the P / E ratio, the more expensive a share is about the profit that the company generates.
The “Wall Street Journal” calculates that Coinbase is currently trading at around 90 times. According to its annual profit. At Intercontinental Exchange, on the other hand, the operating company of the New York Stock Exchange. The comparative value is currently around 31. At Nasdaq, it is 27. Investors should also have these numbers in the back of their minds. Although, before they access Coinbase shares.
Coinbase More Expensive Than Nasdaq Itself
The Nasdaq set the reference price for a Coinbase share at $ 250, which corresponds to a valuation of the platform of $ 50 billion. Shortly after the start of trading, the stock climbed to $ 340. By comparison, the Nasdaq itself is worth $ 26 billion on the stock market. Coinbase has 56 million customers worldwide. And is expected to have net income between $ 730 million and $ 800 million. Also, the revenue of $ 1.8 billion in the first quarter. However, the previous year and the current year 2021 were very good years for cryptocurrencies. That was not the case in 2019 when Coinbase had posted losses.
The further development of the Coinbase share is likely to be very closely linked to that of Bitcoin. Bitcoin is a digital currency that is not managed by any central bank or state. However, rather by a decentralized network. The maximum number is limited to 21 million. In the past twelve years, the price has risen from a few cents to over $ 60,000. However, each multiplication was followed by a steep fall. In 2017, Bitcoin had grown twenty-fold to crash 80 per cent in 2018.
In boom phases, numerous new users register on the crypto exchanges. However, in the weak phases, there is a tendency to be reluctant. The fact that the fate of Coinbase is closely linked to that of Bitcoin. Also represents an opportunity for investors to invest in the Bitcoin story. Additionally, without having to purchase Bitcoin directly. The IPO of Coinbase is the arrival of Bitcoin on the stock markets. Also, the establishment in the classical financial world.
The bottom Line
Every investor will have to decide for himself. Whether investment in the share is worthwhile. With its IPO, Coinbase has the potential to make one of the floor debuts of the year. The financial world is looking spellbound to New York. Therefore, eagerly awaiting the ringing of the stock market bell.
The Coinbase IPO is not the first step towards more acceptance for Bitcoin this year. In February, Tesla became the first major US corporation. Announcing that it had invested 1.5 billion euros in Bitcoin.