Coinbase will be listed on Wednesday through a live presentation of directors, and investors see this as a “watershed moment” for the cryptocurrency industry.
The digital currency exchange can be valued at as much as $ 100 billion, making it more valuable than large trading companies such as the New York Intercontinental Exchange and Nasdaq.
This comes as the prices of bitcoin and other virtual currencies have risen over the past year as investors wanted to diversify their portfolios in the belief that an increase in inflation would come. Bitcoin reached a new record high of more than $ 64,000 on Wednesday and has more than doubled its value so far.
Danbis, a technical analyst at Wedbush Securities, said the debut of Coinbase on the public market is a watershed event for the crypto industry, and it will be something the Street Laser will be focused on.
“It’s going to legalize a lot of these businesses,” said Marcus Swanepoel, CEO of London crypto platform Luno, about the Coinbase debut. “For now, it’s going to show how big the industry is and how much it’s growing.”
Coinbase is the largest cryptocurrency company known so far. According to CoinMarketCap, it is the second largest digital asset exchange in the world, according to CoinMarketCap, and is credited with bringing crypto into the mainstream with its easy-to-use app.
But there are a number of risks involved. Cryptocurrencies are notorious for their hugely volatile price movements, and skeptics believe it could be in a big market bubble that will burst at some point. Meanwhile, global regulators are increasingly trying to bring crypto under their control, with India’s government even banning digital currencies.
Volatility
Coinbase estimates that it earned $ 1.8 billion in revenue in the first quarter of 2021, a whopping 844% increase over the $ 190.6 million it generated in the same period a year earlier. This was largely due to the large price increases of digital currencies such as bitcoin and ether.
Given Coinbase’s business is strongly linked to the performance of major cryptocurrencies, there is a risk that the momentum could turn upside down if there is a significant downturn in the market.
“Crypto-enterprises will eventually have to figure out how to diversify their revenue streams,” said Hunter Merghart, a former Coinbase CEO who is now head of the US-based US headquarters for Bitstamp.
“I think we are still very much in the investment phase at the moment and the overall crypto-pie will continue to grow.”
Bitcoin rose to nearly $ 20,000 in late 2017 before crashing to nearly $ 3,000 the following year. This price volatility has been a major criticism of bitcoin’s opponents, who say it does not fail key tests for currencies, such as serving as a medium of exchange or value-added.
However, crypto investors believe that such a sharp fall in prices – known in the industry as ‘crypto winter’ – is unlikely in the near future. They view bitcoin as a kind of “digital gold” that is not correlated with other assets and can serve as a hedge against rising inflation.
“The price of bitcoin has risen a lot over the last ten years,” Swanepoel said. “If it does come down, it sets a new baseline and the growth continues on the new baseline.”
“I actually think the baseline outside of this cycle is going to be significantly higher,” he added. ‘If you look at commodity markets, it has normal cycles and then’ super-cycles’. I suspect this is a super cycle for crypto. It can now accelerate much longer. ‘
Regulation
Earlier this year, US Treasury Secretary Janet Yellen warned in her confirmation hearing that bitcoin and other cryptocurrencies are mainly used for illegal activities and that the government may have to “curtail” their use.
Coinbase says it is regulated and has partnerships with a number of banks. But he warned in his prospectus that negative changes to regulations could “adversely affect” their financial condition.
Before the term of former President Donald Trump ended, the Treasury Department proposed a rule requiring financial services companies to record the identity of cryptocurrency holders. This has been controversial in many crypto businesses.
“The regulatory risk is high because crypto platforms are currently not subject to the same rules as traditional exchanges or trading platforms,” said Stéphane Renevier, an analyst at financial training platform Finimize.
“Some of Coinbase’s activities (such as some of its major brokerage services and the use of its own capital to trade) may in future tighten regulation,” he added. “As the regulatory landscape evolves very rapidly, the company is always in danger of a change in status, which could have an effect on some of its most profitable activities.”
Jesse Powell, CEO of Coinbase’s rival, Kraken, told CNBC that he believes there could be some degree of repression of cryptocurrencies.
‘Crypto’s technology giant’
Garry Tan, founder of venture capital firm Initialized and an early investor in Coinbase, said the cryptocurrency market was still in its infancy.
“We are not there yet,” he told CNBC. “We’re still very early in the innings, but it’s not that crazy anymore.”
But Tan and other Coinbase bulls say the company has created a competitive ‘grag’ around its business that would make it thrive, even with the advent of new regulations.
“Coinbase is like the technology giant of crypto,” Tan added. “Coinbase’s (debut), and it exists as one of the cornerstone technology companies in Silicon Valley, is very powerful because it means that, just like the personal computer revolution Apple and Microsoft need, the crypto revolution needs Coinbase. “
Insiders from the Crypto industry say that Coinbase is just one part of the story. There are other emerging trends in the market, such as items from digital collectors and so-called decentralized financing, which are aimed at recreating traditional financial products without intermediaries like the banks. In addition, Coinbase may face tougher competition from competitors such as Binance and Kraken, the latter of which weighs its own share list for next year.