Since its listing on the Nasdaq, the cryptocurrency exchange Coinbase has not shown impressive results. This has given rise to a number of speculations about its bleak medium-term prospects.
Coinbase and cryptocurrencies
Coinbase started trading bitcoin in 2012, and has since grown into the largest cryptocurrency exchange in the United States. Initially, it supported only bitcoin, but soon began to actively add other cryptocurrencies, adhering to the standards of decentralization.
By May 2013, Coinbase had completed the first round of funding (Series A). The investment amounted to $5 million. By the end of the year, the Andreessen Horowitz venture fund had poured $25 million into the project. At that time, the market capitalization of bitcoin (BTC) was $9.08 billion.
In the following years, Coinbase consolidated its status as the leading crypto exchange in North America.
At the same time, cryptocurrencies were actively conquering the world. The growth of their popularity and the bullish crypto rally of 2017 prompted many banks to start looking at the possibilities of making transactions with cryptocurrency.
While they were just learning about the phenomenon of cryptocurrencies, Coinbase has already moved to the forefront, becoming number one on the Apple App Store in December.
Even after the fall in the bitcoin exchange rate, Coinbase still maintained a moderate growth rate. The exchange continues to adhere to this trend, although it periodically faces problems. So, in 2020, within one month, it had to stop trading several times. However, this did not prevent it from expanding its user base and product line.
The process culminated in the Nasdaq listing.
Forward to publicity
In February 2021, Coinbase conducted a direct listing of its shares under the COIN ticker on Nasdaq. It is worth noting that this procedure is not completely identical to the traditional initial public offering (IPO), since it does not require an additional issue of securities.
See also: Coinbase IPO: What the Nasdaq listing means for the crypto market
So Coinbase was the first cryptocurrency exchange that managed to become a public company. Of course, this event attracted increased attention from both the media and other leading crypto exchanges, such as Kraken, eToro, Robinhood and BlockFi. All these trading platforms have made it clear that they are also considering an IPO in the near future.
This high-profile move by Coinbase was driven by three powerful trends that the company hoped to capitalize on.
- The popularity of cryptocurrencies. Bitcoin has reached a historic high of around $64,000; other digital currencies have also set new records, including such well-known coins as ethereum (ETH) and Ripple (XRP).
- A boom in the stock markets. Investors around the world showed a high interest in new listings, and companies massively entered IPOs.
- Retail traders. Thanks to companies like Robinhood and Revolut, investing has become more mobile and accessible for retail players. This led to their record influx into the market.
On the day of the launch of trading, the head of Coinbase, Brian Armstrong, sold 749,999 shares at a price of $381 to $410. However, the start was not very successful. Soon, one of the early big investors in Coinbase, the NYSE stock exchange operator, sold its stake in the crypto exchange for $1.2 billion.
At the end of the first day of trading, the price of one COIN share was $381 at the opening and $328.28 at the closing, although it reached highs above $400 during the session. In general, during the first 13 trading sessions, the price of Coinbase shares ended with a decline 10 times.
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Coinbase’s Dim Future
When it was a public company, Coinbase (COIN) has already managed to report once on its financial performance for the 1st quarter. The company’s total revenue rose to $1.8 billion, and revenue for the reporting period exceeded $700 million.
However, some analysts remain skeptical about the exchange’s future prospects. So, Dan Dolev from Mizuho Bank predicts the company’s stock price at $315 and a neutral rating.
Despite decent earnings figures and a growing user base, Coinbase experienced a historic low, when the company’s share price barely held above the $239 mark amid a drawdown of the bitcoin exchange rate below $40,000. At the time of this writing, the stock has already fallen to $216 as bitcoin’s drawdown has continued.
A logical question arises. Is the well-being of Coinbase as a company directly dependent on the dynamics of the cryptocurrency, or will the exchange be able to represent something more than just the sum of all its components?
In addition, some believe that the value of COIN will be negatively affected by pressure from potential competitors.
As mentioned above, Bakkt, Robinhood and eToro are also thinking about transforming into public companies. It is important to understand that this threat is not limited to direct competition on the Nasdaq platform.
Bakkt and eToro have diversified their portfolio offerings, which may increase the pressure on Coinbase, especially given their current commission structure.
Meanwhile, Robinhood has promised to reveal details of its plans for an IPO as early as next week, and the company is expected to go public at the end of June. This becomes a real threat to COIN.
Some good news
Recently, the investment firm Oppenheimer spoke positively about the prospects of Coinbase, assigning the company a rating of ” outperform». Oppenheimer analyst Owen Lau referred to the ability of cryptocurrencies to mitigate financial problems due to their characteristics such as international payments and the availability of banking services.
According to the expert, the price of COIN shares may rise by 50% from the current level, which at the time of the rating release was $284.52. However, it should be remembered that later the shares continued to drawdown.
Meanwhile, the management of Coinbase shared with investors plans for further expansion. It is likely that the exchange intends to continue a series of acquisitions, similar to the recent purchase of the analytical platform Skew. In addition, the company is going to improve the range of products offered to customers, in particular-through the processes of buying and selling NFT tokens on its platform.
Another Coinbase solution to the stock price slump is the idea of convertible bonds. Under certain conditions, such bonds can be exchanged for shares. Such capital raising avoids additional issues and delays the dilution of shares for current shareholders. In the opinion of management, the cash received can be used for various capital expenditures and other purposes.
Perhaps all of these initiatives will help Coinbase improve the prospects for COIN. However, the volatility in the crypto space is increasing, and the NFT boom has begun to decline, so the fate of COIN will remain in the hands of many factors.
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