Coinbase Global Inc. became the most valuable US exchange on Wednesday amid strong demand for the cryptocurrency platform’s new public shares.
Shares of Coinbase COIN,
began trading at $ 381 a share on Wednesday at 1:25 PM Eastern, after a reference price of $ 250 was set Tuesday afternoon, rising to $ 429.54 before the first day of trading ended at $ 328.28. Coinbase held a direct listing rather than a standard IPO, meaning that the company did not raise money through the IPO process and does not have a traditional IPO price by which to measure the stock’s first day rally.
At the closing price, Coinbase was valued at $ 85.8 billion on a diluted basis. CME Group Inc. CME,
the second most valuable US stock exchange, has a market capitalization of approximately $ 74 billion.
Coinbase IPO: Everything You Need to Know About the ‘Tipping Point Moment’ in Crypto
Coinbase’s direct listing comes at the ‘perfect’ time for the platform, given the booming demand for crypto trading and record-high prices for bitcoin BTCUSD,
said Reena Aggarwal, a professor of finance at Georgetown University’s McDonough School of Business. She expects the company to attract widespread interest, including from exchange-traded funds that want exposure to the world of cryptocurrencies but cannot actually own bitcoin.
The company expects to report sales of about $ 1.8 billion in the first quarter, more than 800% more than the same quarter a year earlier. Coinbase also expects to post a net profit of $ 730 million to $ 800 million, compared to the $ 32 million it reported a year earlier. The company has 56 million verified users.
While the company is clearly benefiting from the rising interest in cryptocurrencies, experts predict that Coinbase’s stock will be volatile given its links to crypto trading activities and the price of popular crypto assets.
Also see: Coinbase has sparked ‘a lot of frenzy’ and ‘that never ends well,’ bitcoin bull Novogratz tells MarketWatch
“To be cautious, we’re assuming cryptocurrencies’ value will remain cyclical, so we’re assuming Coinbase’s earnings will be> 35% by 2022. lower than 2021, ”analyst MoffettNathanson wrote in a note to customers on Tuesday. She argued that “it is quite likely that we are currently nearing a peak,” with Coinbase’s forecast revenue in the first quarter alone 40% higher than what the company has posted for all of 2020.
Still, Ellis chose to rate the stock as a buy with a $ 600 price target, calling the stock an “extraordinarily rare asset” that while “not for the faint of heart,” but rather for investors with a “multi-year” time horizon for their investment.
See also: Five Things You Should Know About Coinbase When It Goes Public
Coinbase generates most of its revenue from trading its crypto wallet, and another question concerns the sustainability of the company’s fee structure. The company’s fees are “an order of magnitude higher” than what US stock exchanges and brokers can charge, according to Bernstein analyst Harshita Rawat, who expects some pressure on this part of the company.
Currently, companies like Coinbase (and smaller peers like Gemini) can charge higher fees (compared to peers) for products aimed at newer / less advanced crypto users – as they stand out in terms of ease of use for new users, Rawat wrote, predicting that it would eventually become difficult for the company to maintain its current fee levels amid a competitive crypto trading market.
Aggarwal reiterated some of these concerns, as she expects the company to face competition from “from crypto exchanges as well as from the traditional exchanges,” although she believes Coinbase will “continue to have a competitive advantage” as there is scope for fees to drop without crashing dramatically.
For More: Coinbase IPO Is Huge Score on Crypto Platform’s “Who’s Who” List of Private Equity Investors
She also highlighted a smaller portion of Coinbase’s business – its role as a custodian that holds crypto assets for businesses – as an intriguing part of the company’s strategy and one that sets Coinbase apart from traditional exchanges that typically don’t perform this function.
“While the trading side may be volatile, the custodian aspect will be stable,” said Aggarwal, noting that the custody firm is binding companies to Coinbase for possible future trading activity. More businesses could become familiar with using this service now that Coinbase is public, she added.