For many investors Coinbase Global Inc.’s trading debut next week will be an entry into the $ 2 trillion cryptocurrency market.
And for those already full of Bitcoin, the arrival of the largest US cryptocurrency exchange on the Nasdaq Stock Market could be what it takes to settle wallets ravaged by the infamous asset class volatility.
There are already other files associated with the bits and bytes of the different blockchains. From Elon Musk Tesla Inc. and Michael Saylor’s MicroStrategy Inc. notably, both have added billions of Bitcoin to their treasuries. But with Coinbase’s public listing, investors have a choice between equity linked to cryptocurrencies – so the hope – less chance of sustained cycles of boom and failure.
“For a crypto investor who also buys stocks, he has the ability to diversify risk as there is a highly profitable exchange platform that trades in a different location (exchange) where the flows of buyers and sellers may be less correlated than many crypto prices , ”Greg Foss, a seasoned credit trader, Bitcoin investor and chief financial officer for Validus Power Corp., wrote in an email response to questions.
Coinbase plans to go public via direct listing, in which it will not raise new capital, it said in an S-1 filing. The direct listing allows current shareholders to trade their shares without a lock-up period typical of an IPO. It was rated at approx $ 90 billion in the last week of trading in the Nasdaq private market, Bloomberg News reported.
But since volume and price usually go hand in hand, Coinbase’s transaction earnings, the largest segment, can remain sensitive to fluctuations in the cryptocurrency market.
“In a traditional equity portfolio, it provides exposure to an exchange platform that generates trading fees on crypto,” Foss wrote. “Those fees go up with volumes and volumes tend to go up with prices, so there’s a beta trading there.”
Coinbase said on Tuesday it expects to report a first quarter earnings of $ 730 million to $ 800 million, more than double what it made in all of 2020. The bumper quarter for the exchange comes amid soaring cryptocurrency prices. The Bloomberg Galaxy Crypto Index, which tracks Bitcoin, Ether and six other cryptocurrencies, is up more than 100% in each of the last two quarters.
Coinbase market capitalization projections relative to listed exchanges
Coinbase may further attract investors. According to Gil Luria, head of institutional research at DA Davidson & Co., the exchange could provide an accessible, diversified investment in the space, where there is a proliferation of cryptocurrency tokens and few passive vehicles to distribute bets.
“Coinbase will win regardless of which crypto assets emerge as the winner, and their earnings are more tied to trading volumes, which are often less volatile than asset values,” Luria wrote in an email.
But investors looking to add some stability to their cryptocurrency wallets may want to exercise patience.
Kevin Kelly, global head of macro strategy at research firm Delphi Digital, warns that those looking for a lower volatility investment may want to avoid Coinbase’s first week of trading.
“I expect a lot of volatility next week once COIN starts trading, but eventually I think we’ll see it trading more in line with the broader crypto market direction,” Kelly wrote in an email. “However, I see it as a lower beta version of the ongoing cryptocurrency expansion with fewer downside risks to cryptocurrency prices; in other words, COIN is more agnostic towards cryptocurrency prices and can be an attractive opportunity for investors looking to gain exposure to ongoing cryptocurrency adoption without assuming comparable levels of price volatility. “