Finally, what we have been waiting for: the US Securities and Exchange Commission has released Coinbase’s S-1 and paved the way for a direct listing on Nasdaq.
Some missing information is missing (especially when they plan to give a list), we now get a look at how a large crypto exchange works, what it is worried about and how much the market is growing.
The figures are indeed striking: in the fourth quarter of 2020, the number of verified users on Coinbase’s platform reached 43 million after adding nearly 45,000 new users a day. The average number of users who made monthly transactions grew by more than 30% to 2.8 million in the fourth quarter alone.
Striking is also the influx of institutional investors, something we have talked about regularly in this column. In the fourth quarter, institutional trading volume grew by more than 110% to $ 57 billion, while retail volume grew by almost 80%. The company serves 7,000 institutional accounts.
The Coinbase submission gave everyone working in this industry something to chew on. There was the daring vision, the numbers, the service overview and some details about their recent acquisitions. There was even a wink to Bitcoin creator Satoshi Nakamoto, who appeared on the front page as a designated recipient of copies of the documents.
And for those interested in the future of the job, the usual physical location of the file was listed as’ Address not applicable ‘, with the footnote:’ In May 2020, we became a first company at a distance. Consequently, we do not have a headquarters. ‘
Related: Google Finance Adds Crypto Data Tab
While there is a lot to submit, and undoubtedly a lot to keep the next few days apart, we need to take a step back and see what this document is really about and what it says about the future of capital markets. . Deep down, it’s about trust reform.
Open the books
One of the major advances for the industry is greater transparency about the inner workings of a major infrastructure company.
With greater transparency comes greater trust. This is not the same as confidence that Coinbase’s value will rise and rise. The confidence is that here is a real business opportunity for investors and builders.
We have all experienced the dismissal of general economists and investors that crypto is anything but hot air. We have all seen market innovations being dismissed as trivial or even annoying. Yet, with this solid document, even the most skeptical market observers will look at the numbers and realize that this business is significant, and that cryptocurrencies are shifting significant amounts of money. What’s more, the market attracts a growing user base that generates significant profit margins.
With this submission, more traditional businesses will trust that crypto-assets are here to stay, and that it is a market force to be reckoned with.
Sharing concern
The submission also provides a full breakdown of the potential risks to Coinbase and the industry as a whole. Any therapist will tell you that sharing your worries helps reduce them. In terms of finances, regulating every risk you can think of is good; it also helps them look more concise.
The risks listed by Coinbase include the usual warnings about the sensitivity of Coinbase’s revenue to the volatile nature of crypto markets, the possibility of cyberattacks and the threat of negative regulation. It also contains some less discussed risks, such as the possibility of class action lawsuits, the loss of banking relationships and the reappearance of Satoshi Nakamoto personally.
By showing everything that we think could go wrong in our industry, in public, you can worry that we are blind to the dangers of untested technologies, new financial instruments and attracting quick profits. It broadcasts what we know, and yet we believe these markets are necessary.
This increases the confidence in our industry and in the overall integrity of the key market participants.
Ground force
The trust reform is also evident in Coinbase’s decision to use the direct listing approach. This bypasses a large part of the IPO rigmarole, by listing the company by selling existing shares on the market. This means that no route is needed to raise institutional interest, no expensive fees to underwriters or dilution of shareholders.
It is also applicable to a company that operates through a decentralized ethos, even if it operates a centralized enterprise. In a stock exchange, the initial trading price is determined by a group of investment bankers who balance the declared institutional interest with the firm’s desire to get the highest price possible (and the advice’s preference for higher fees). In a direct listing, the market decides.
However, it is almost unfortunate that Coinbase has chosen to abandon the crypto-education opportunity that a roadshow would offer to institutions. Imagine that the investment committees of mutual funds, pension funds, etc. Get a master class in crypto-assets and their markets.
A further effect of Coinbase’s direct listing decision is the message it is sending to other companies in the industry, which are also considering taking advantage of rising prices and volumes. Investment banks are undoubtedly already launching a flood of incoming requests for meetings, and in the next few months other well-known crypto companies, and probably even more obscure ones, will most likely follow a similar path.
More businesses announcing their accounts will lead to a greater understanding of the industry, which increases trust.
Phase 2
The Coinbase movement is further expanded and described where we are in the arc of the crypto impact on capital markets.
Those of us who work in the crypto industry have been saying for some time that crypto markets will affect traditional markets more than most currently realize.
What is becoming clearer now is that this will happen in phases. We are currently in the asset phase, where the value propositions and price potential of cryptocurrencies and tokens dominate the thinking pattern of traditional market participants. Companies that help investors manage and manage their crypto holdings are central. We will also see traditional players turn against the toes in the crypto pool to take advantage of the attention-grabbing for their clients.
This first phase deals with the assets themselves and the facilitation of access to them.
The next phase will be how assets move.
Coinbase indicates this in the S-1 document when discussing traditional assets that move on blockchains. The growth strategy includes the following: “Tokenize new assets.” The section goes on to say: “We will invest in infrastructure and clarity on regulation to pave the way for the digitization of more traditional financial assets to pave the way for new assets to be presented as crypto-assets.”
It is worth remembering that Coinbase participated in the financing round of several companies that build security token infrastructure.
Some had hoped that Coinbase would be an example and come to market via a security voucher. Progress is being made, but the security market is still too illiquid and immature to support such an ambitious move. However, interest is growing, supported by recent market events that have exposed the inefficiency of the current plumbing work in the capital market.
And Coinbase has buried deep in the S-1 text a hint that it may consider issuing blockchain tokens in the future, with the following statement: ‘We may hold shares of capital stock, including in the form of blockchain tokens , outreach to our customers in connection with customer rewards or loyalty programs. ”
This is another way the Coinbase listing is about trust. The eventual migration of capital markets to blockchain-based systems, combined by the issuance of new securities-like assets as well as secured securities, could push confidence in capital markets back to a healthy level.
With its S-1 submission, Coinbase is not just campaigning for a new kind of confidence in crypto markets. It may also be a broader focal point for a new kind of confidence in capital markets. This is a huge ambition, but one that both crypto-market practitioners and capital market observers can spot.
CHAIN LINKS
Payment giant Square bought an additional 3,318 BTC for $ 170 million, bringing its stake to 8027 BTC. It also revealed that the allocation of 4,709 BTC to its treasury holdings in October 2020 will cost about $ 50 million. The stake is now worth more than $ 250 million. TAKE AWAY: It highlights the complex issues surrounding the allocation of treasuries to bitcoin, a growing trend among innovative companies concerned about the impact of fiat dismantling. Should treasury ownership be a speculation? What happens if the increase in value exceeds the company’s revenue? How should this be reflected in accounting? Interesting to note that RBC has increased its price target for Square for 2021, partly due to a 69% increase in bitcoin revenue by 2021.
Square was not the only company to add its BTC stake this week. MicroStrategy showed the purchase of another 19,452 BTC for $ 1.026 billion dollars. TAKE AWAY: The funds for this purchase came from a convertible debt offering of $ 1.05 billion and utilized the business even further up to the BTC price.
Asset Manager CoinShares launched a physically supported Ethereum ETP on the Swiss SIX exchange with the checkmark “ETHE.” TAKE AWAY: Following the heels of CoinShares’ bitcoin ETP launch in January, it highlights the growing interest of investors in ETH.
Crypto Asset Manager CoinShares also released the CoinShares Gold and Cryptoassets Index Lite (CGI), a decentralized finance sign (DeFi) designed for institutional investors. The value of the token is based on two equally wrapped “wrapped” crypto assets – wrapped bitcoin (WBTC) and wrapped ether (WETH) – and the wrapped gold token of the firm, wDGLD. TAKE AWAY: If you read last week’s newsletter, you’ll know it’s worthwhile to see institutional interest in DeFi. This sign makes it even easier, not only because it can be detected, but also because it provides a relatively comfortable ramp for investors considering exposure. It’s not really a “hard core” DeFi innovation, but it’s a start.
CI Global Asset Management, a subsidiary of a firm that oversees more than $ 230 billion in assets, has submitted a preliminary prospectus for CI Galaxy Bitcoin ETF (BTCX), which, if approved, would be Canada’s third bitcoin ETF. be. TAKE AWAY: Given the strong demand for the Purpose Bitcoin ETF in the early days of trading (when the BTC price did not fall), this is possibly just the beginning of a stream of ETFs listed on the Canadian stock exchanges. As the bitcoin ETF market begins to populate Canada, we may also see more diverse approaches, such as offering investors exposure to a basket of assets.
A February survey of 30,000 people over the age of 18 conducted by Piplsay, a global consumer research platform, found that 25% of surveyed Americans own cryptocurrencies, with a further 27% saying they plan to invest this year. TAKE AWAY: These results are consistent with similar surveys conducted recently by Grayscale Investments (a subsidiary of DCG, also the parent of CoinDesk) and Bitwise, and highlight the likelihood that the US government will try to ban bitcoin. The greater the mainstream interest in bitcoin, the more regulated services will step in to serve this market, and the more comfortable regulators will be with pending issues.
ETH traded as low as $ 700 (down more than 50%) on crypto exchanges during the market sale on Monday Kraken. TAKE AWAY: It emphasizes that, although the liquidity in the market has improved dramatically over the years, there may still be problems with the follow-up of the order books due to large volume and uncertainty.