Why Coinbase Trading Debut Is A Cryptocurrency Release Night

SAN FRANCISCO – Digital currency, once seen as a tool for criminals and reckless speculators, is sliding into the mainstream.

Traditional banks help investors put their money into cryptocurrency funds. Companies like Tesla and Square are accumulating Bitcoin. And celebrities are leading the way in a digital art spending spree using a technology called NFT.

Cryptocurrencies or cryptocurrencies took their biggest step towards wider acceptance on Wednesday when Coinbase, a start-up that allows people to buy and sell cryptocurrency, went public. Coinbase shares started trading at $ 381 each, up 52% ​​from a benchmark price of $ 250, eventually closing at $ 328.28. This gave the company a valuation of $ 85.7 billion based on all of its outstanding shares, more than 10 times higher than Coinbase’s last private valuation.

Call it the crypto coming out party. San Francisco-based Coinbase is the first major cryptocurrency startup to go public on a U.S. stock market. It did so at a rating that rivaled that of Airbnb and Facebook when they went public.

Cryptocurrency advocates – many of whom expect technology to disrupt the global financial system – are celebrating the turning point as a vindication of their long-held belief in the potential of their cause.

Coinbase’s listing answers the question “Is crypto a real thing?” Said Bradley Tusk, a venture capitalist whose company, Tusk Venture Partners, has backed Coinbase. “Any industry that can launch an IPO of this size is definitely a reality, and it is proven by the market.”

The list gives traditional investors who may be hesitant to buy risky digital currencies directly the option of owning stock in a Securities and Exchange Commission approved company that facilitates transactions.

It also gives the financial world a glimpse into Coinbase’s healthy profits – something most other highly regarded tech startups lack – and skyrocketing adoption. Coinbase, which has 1,700 employees and 56 million registered users, reported an estimated net profit of $ 730 million to $ 800 million in the first three months of the year. It generated $ 1.8 billion in revenue during that time, nine times more than a year earlier.

“It’s blowing up a lot of traditional tech and financial companies,” said Jalak Jobanputra, founder of Future Perfect Ventures, an investor in the category. “Not that long ago, people just thought crypto wasn’t big enough.”

But Coinbase’s listing also raises a question about the future of digital currency. Industry evangelists have long predicted that cryptocurrency and its underlying blockchain technology could lead to a decentralized financial system without governments or banks – a revolution rivaling that of the internet. This philosophy is reflected in Coinbase’s plan to “create an open financial system for the world” and “increase economic freedom”.

But until now, cryptocurrency is primarily a vehicle for financial speculation and trading. Not many people want to use Bitcoin for their everyday purchases like coffee because its price is so volatile. It has also become a lightning rod for environmental concerns because its technology uses a huge amount of computing power and electricity.

Many first-time buyers have become extremely wealthy by simply holding their crypto or “buying down” when prices fall. Others regretfully tell stories of the sushi dinner they bought with Bitcoin years ago that would be worth $ 200,000 today or the million dollar pizza.

Coinbase facilitates this trade by acting as a central exchange. Before this and similar services were created, people had to create their own digital wallets and wire money.

“Can it be anything other than an asset class? Mr. Tusk asked. “It’s still very much pending.”

Coinbase’s trajectory has followed the ups and downs of the wider crypto world. Brian Armstrong, former software engineer at Airbnb, and Fred Ehrsam, former trader at Goldman Sachs, started in the business in 2012, when Bitcoin was the only digital currency and it wasn’t very useful or valuable.

“It was seen as not very serious or suspicious,” as were the early days of the Internet, said Marc Bernegger, investor at Crypto Finance Group, an asset manager in Switzerland.

Headlines on Silk Road, a marketplace to buy and sell drugs and weapons with Bitcoin until federal authorities shut it down, and Mt. Gox, a crypto exchange that collapsed on charges of theft and embezzlement, has further tarnished the young industry.

Coinbase tried to change this. The company joined Y Combinator, a prestigious startup program, and raised funds from top venture capitalists including Union Square Ventures and Andreessen Horowitz.

Mr Armstrong was one of the few people in the industry who seemed ready to comply with the inevitable regulations, rather than take shortcuts to avoid them, said Nick Tomaino, who dropped out of business school to join Coinbase. in 2013.

Coinbase has also persuaded well-known retailers to accept Bitcoin. “It was good for credibility when people saw that you could actually use a Bitcoin to buy a mattress from Overstock,” said Mr. Tomaino, who left in 2016. Coinbase made money on the fees transaction.

But Bitcoin’s extremely volatile price and a slow computer network that managed it made transactions difficult, and people began to view currency as an investment. In 2015, Ethereum, a cryptocurrency network with more technological capabilities, was introduced, prompting enthusiasts to build businesses and funds around technology.

Soon after, a flood of “initial coin offerings,” where companies sold tokens on the promise of the technology they planned to build, created a new boom in cryptocurrency trading. But it quickly chickened out after many projects turned out to be frauds and US regulators considered the offers to be securities, requiring them to comply with financial rules.

Over the past year, day trading and a cash surplus in the pandemic have pushed the value of Bitcoin, Ether (the currency of the Ethereum network) and other tokens to new highs, opening up a new boom.

This inspired Tesla to buy $ 1.5 billion worth of Bitcoin and the payment company Square to spend $ 170 million. In March, Morgan Stanley began offering its high net worth clients access to three Bitcoin funds, and Goldman announced that it would soon offer similar access. The mayor of Miami has proposed that the city accept Bitcoin tax payments and invest city funds in the asset.

The Robinhood stock trading app reported that 9.5 million of its clients traded cryptocurrencies in the first three months of the year, more than five times more than the previous three months. According to PitchBook, venture capital funding for crypto-related start-ups hit its highest level ever in the first quarter to reach $ 3 billion.

PayPal recently added crypto trading and buying functionality for its customers in the United States. The company was driven by consumer interest and technological advances that speed up transactions. He plans to rapidly expand the offer to customers around the world.

“It looks like the time is right,” said Jose Fernandez da Ponte, head of PayPal’s blockchain, crypto and digital currencies group. “We believe this has the potential to revolutionize payments and financial systems in general. “

Yet the so-called revolution faces certain challenges. Coinbase has struggled at times to keep up with demand, with some customers losing access to their accounts complaining that the company is not responding. He also received criticism for his treatment of female and black employees.

Treasury Secretary Janet L. Yellen has threatened to tighten up currency regulations, including restricting their use.

And a sharp drop in prices could once again scare away speculators. In its financial prospectus, Coinbase warned that its trading results would vary depending on the volatility of crypto assets, “many of which are unpredictable and, in some cases, beyond our control.”

The industry’s biggest problem – keeping the promise that technology is more than just a place to park money – could take another decade to play out.

“There is no doubt that we are in the last boom, and I don’t know if this will turn out tomorrow or in two years,” Mr. Tomaino said. “But the busts and booms are always higher than the previous ones.”

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