 Cryptocurrency exchange runner Coinbase conducted a direct listing on Nasdaq on April 14. |
The world has a new exchange giant.
Coinbase Global Inc., the cryptocurrency exchange operator, began trading in the U.S. public markets through a direct listing on April 14 that was met with fervent demand early on only to taper off later in the day.
On the back of a huge run-up in cryptocurrency prices, investors across Wall Street and Main Street piled into Coinbase's newly public class A stock soon after it opened at 1:25 p.m. ET. Shares jumped to about $425 each from their opening price of $381 within 15 minutes, briefly making Coinbase one of the largest exchange operators in the world with a market capitalization in excess of $110 billion. By comparison, the New York Stock Exchange's owner, Intercontinental Exchange Inc., Coinbase's listing venue, Nasdaq Inc., and fellow equities venue Cboe Global Markets Inc. had a combined market cap around the same time of $103 billion.
Shares in the stock closed the day at $328.28, down more than 13% from their opening price. Its market capitalization after one day of trading stood at $85.78 billion, which is still more than what ICE, Nasdaq or Cboe command individually.
Founded in 2012, Coinbase is one of the best-known cryptocurrency exchanges in the world, offering its 56 million users the ability to trade Bitcoin, Ethereum and other cryptocurrencies. Its debut is the latest high-profile example of the direct listing method of going public, an IPO alternative that has slowly gained steam since Spotify Technology SA helped pioneer the model at the New York Stock Exchange in 2018. Coinbase's listing is likely being closely watched by many of its still-privately held cryptocurrency exchange peers, such as Gemini Trust Co. LLC and Kraken, which may be looking for a glimpse into the market's appetite for publicly traded crypto securities as they weigh listings of their own.
The company, which was last valued in 2018 at about $8 billion, has been one of the biggest winners of the pandemic-era crypto boom. The two largest cryptocurrencies, Bitcoin and Ethereum, have respectively risen by more than 800% and 1,300% over the last year, according to Coindesk data. Coinbase has seen a stunning level of growth as a result. Its revenues for the first quarter are expected to total about $1.8 billion, more than the $1.28 billion that Coinbase generated in all of 2020. Most of those revenues can be traced back to transaction fees that Coinbase charges its users, which accounted for about 96% of total net revenues last year.
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Just as traditional financial exchanges have done, though, Coinbase will likely have to diversify its revenue mix over time as its cheaper competitors grow. Coinbase acknowledged as much in its S-1, saying it expects to push into steadier "subscription and services revenues" like its Store, Stake, Save, Borrow, and Lend products as the market for cryptocurrencies grows. In 2020, subscription and services revenues accounted for just under 4% of its total net revenue.
The company has also increasingly sought to court institutional traders and buyers of cryptocurrencies as the asset class gains mainstream acceptance among companies. In the fourth quarter of 2020, more than half of the nearly $90 billion worth of trading volume on Coinbase originated at institutional clients.
"The cryptoeconomy is just getting started," Coinbase CEO Brian Armstrong wrote in a letter included in the company's S-1. "It is not intended to replace the traditional economy, but instead be a complement to it, much like email was to paper mail."
