San Francisco-based cryptocurrency exchange Coinbase announced plans to go public in January 2021.
In a blog post, the company announced its plans “to become a publicly-traded company by proposing a direct listing of its Class A common stock.”
Today is a big milestone for Coinbase and an even bigger milestone for crypto. Thank you to our employees and customers for getting us here. Together, we can build the cryptoeconomy and create economic freedom for all. Join us for today’s events at https://t.co/kki68arv3O $COIN pic.twitter.com/Bvcu9R0otq— Coinbase (@coinbase) April 14, 2021
Trading Coinbase shares
As soon as Coinbase goes public, you’ll be able to trade the shares. It may take a few hours for Coinbase shares to be available – as with all brokers for American IPOs.
This lets you speculate on Coinbase’s share price without storing the actual shares. Instead, you will trade leveraged derivatives, called CFDs.
- When you buy Coinbase shares, you are taking a long position – a term called “buying”
- Shorting Coinbase means you are betting on the share price falling – known as selling
The buying of Coinbase shares
- Create an account or sign up for the trading platform
- Look up ‘Coinbase’
- When selecting a deal, select ‘buy’
- Manage your risk by deciding your position size
- Check your long position by opening it up
Sell Coinbase shares
- Sign up for an account or log in to the trading platform
- Search for “Coinbase”
- In the deal ticket, select ‘sell’
- Manage your risk by deciding your position size
- Monitor your short position
You must manage your risk since leveraged CFDs are leveraged and can both improve and reduce your profits. Also, short selling won’t be possible until there is a sufficient number of shares in circulation to allow short selling on Coinbase.
How Does Coinbase Work?
Take the case of buying Bitcoins. You have two choices: you can mine Bitcoin using sophisticated computers by solving complicated math problems, or you can buy it on an exchange. The former is extremely expensive and requires a ton of technical expertise, whereas the latter requires nothing more than opening an account with the said exchange.
Most people buy bitcoin rather than mine it, which is why Coinbase exists.
In the eyes of many crypto enthusiasts, Coinbase serves as a simple online exchange, where buyers and sellers can find a price together.
As well as completing these tasks efficiently, Coinbase has managed to keep its users’ data secure. There have been many similar crypto exchanges that have come and gone, and many of them have failed to protect their users’ accounts.
The hacking of the Japanese exchange Mt. Gox in 2014 caused Mt. Gox to go bankrupt, and the loss of billions of dollars worth of Bitcoin led to the collapse of the company. Others followed.
According to a Coinbase report released in July 2020, the company has over 35 million users including institutional investors and retail clients.
IPO vs. direct listing
Over a traditional IPO, Coinbase has opted for a direct listing.
An IPO allows companies to float new shares while a direct listing allows them to float existing shares. Despite the SEC lifting the restriction, Coinbase still declined to issue new shares as part of its offering, so it won’t dilute its equity. By listing directly, Coinbase can also avoid some of the onerous (and costly) requirements of an IPO, including the use of intermediaries and underwriters.
How to analyze Coinbase’s share price
Once Coinbase goes public, you should analyze the share price using both technical analysis and fundamental analysis.
- An analysis of price history and chart patterns is called technical analysis
- The fundamental analysis of a company is based on its financial statements, including its net revenue and profits and losses
Once Coinbase lists, you should use both of these forms of analysis to assess its share price – especially since its share price can be volatile due to the inherent instability of the cryptocurrency market.
Coinbase: What’s its worth?
Entrepreneurs often have difficulty valuing their startups. Since private companies don’t accept outside investment, we are unable to know what a start-up is worth. Last year, when Bitcoinbase accepted new financing, the company was valued at $300 million. The company’s market value was $8 billion then, according to CrunchBase.
Coinbase will not be able to provide financial information until it goes public, so we can’t be sure how profitable it is or how much revenue it generates. You shouldn’t be surprised if Coinbase ends up north of that number on its first day as a public company. Over the past year, Bitcoin’s popularity has risen dramatically, resulting in excellent returns for investors and Coinbase.
Coinbase faces more competition due to Bitcoin’s popularity. Investors can purchase cryptocurrency through Robinhood, PayPal, and Square, for example, which offers commission-free trading. The investment giant Fidelity even offers Bitcoin index funds for wealthy clients.
According to recent reports, Coinbase is worth far more than its 2018 valuation. The private market value of the company was estimated at $100 billion, according to Axios. It is not yet known what Coinbase’s market cap will be when it opens to the public.
Coinbase may be best positioned to take advantage of cryptocurrency’s popularity if you think there’s a future for cryptocurrencies. The investors may perform fundamental analysis on the company as they would for any other public company, such as analyzing revenues, earnings, user growth, competition, management, and dozens of other factors.
There is a Catch-22 at Coinbase though: If you fully believe in cryptocurrencies – that is, a decentralized public ledger and all its benefits – then do you value Coinbase, which is a centralized company?
Coinbase also offers its Wallet separate from the Coinbase app, which allows users to store cryptocurrencies and explore decentralized applications. The Coinbase Wallet, however, only charges transaction fees to cover transaction costs, not the transaction fees used in Coinbase’s primary app which generates revenue.