Coinbase Ipo: How To Invest In The Crypto Exchange's Future

Coinbase is a US-based cryptocurrency exchange that went public in April 2021. The company's shares began trading on the Nasdaq exchange under the ticker symbol COIN, marking a significant moment in the cryptocurrency world as Coinbase was the first pure-play crypto trading company to list on a US exchange. Coinbase's IPO was highly anticipated, given its position as the largest crypto platform in the US with over 56 million verified users and a revenue surge of 847% in the first quarter of 2021.

Investing in Coinbase, however, comes with certain risks. The company's revenue is closely tied to cryptocurrency trading volume, and a decrease in trading activity could impact its financial performance. Additionally, Coinbase's fee structure has been criticised for being complex and difficult to understand, particularly for beginner traders. Despite these considerations, Coinbase's IPO presents an opportunity for investors to gain exposure to the cryptocurrency market without directly investing in cryptocurrencies themselves.

Coinbase's IPO is a risky buy

Secondly, Coinbase's valuation at its IPO was considered excessive by some analysts. With a projected valuation of $100 billion, or 77 times sales, it was significantly higher than that of other stock exchanges like Nasdaq Inc. and Intercontinental Exchange. This high valuation increases the risk of a steep drop if Coinbase fails to meet expectations.

Thirdly, Coinbase's business is closely tied to the performance of cryptocurrencies, particularly Bitcoin and Ethereum, which are known for their high volatility. As a result, Coinbase's stock could be subject to abrupt drops in price. For example, when Bitcoin lost 24% of its value in April 2021, Coinbase's stock dropped by 32%.

Finally, Coinbase's decentralised nature makes it more susceptible to hacking attempts compared to traditional banks. While the company has introduced measures to mitigate this risk, it remains a potential threat.

In conclusion, while Coinbase has strong growth prospects and is a leading player in the cryptocurrency exchange space, its IPO carries several risks that potential investors should carefully consider before investing.

Coinbase's business model

Coinbase offers two core products: a Global Digital Asset Exchange (GDAX) for trading cryptocurrencies, and a user-facing platform for trading bitcoin, ether, and other cryptocurrencies. The company charges a commission fee for users to trade on its platform, with regular and pro accounts offering different commission rates.

Coinbase also offers a range of other products and services, including:

• Coinbase Wallet: A standalone app for storing and transferring cryptocurrencies.
• USD Coin (USDC): The company's own cryptocurrency, pegged to the US dollar.
• Coinbase Card: A VISA debit card that allows users to spend their cryptocurrencies in the physical world.
• Coinbase Commerce: Tools for businesses to accept digital currency payments.
• Coinbase Earn: Educational courses about new cryptocurrencies, with payouts in the relevant currency upon completion.
• Coinbase Analytics: A software product that allows users to analyze cryptocurrencies on a macro and micro level.
• Coinbase Ventures: A dedicated investment team that finances early-stage companies in the blockchain and cryptocurrency space.
• Coinbase Custody: A service that holds and stores crypto-related assets on behalf of other parties.

How to buy Coinbase shares

Coinbase is a major US-based cryptocurrency exchange that went public in 2021. Coinbase shares can be bought and sold on the Nasdaq exchange under the ticker symbol COIN.

• Research the future of cryptocurrency: Your investment's potential success is tied to the popularity and trading volume of cryptocurrencies. Do you believe there is a future for cryptocurrencies like Bitcoin and Ethereum? Do you believe that cryptocurrency is the "future of money" as Coinbase states on its website?
• Understand Coinbase's role in the future of crypto: If you believe in the future of cryptocurrencies, the next step is to ask yourself if Coinbase is positioned to capitalise on the popularity of cryptocurrency. This is where investors might perform an analysis, studying the company's revenue, earnings, user growth, competition, and management.
• Decide how much to invest in Coinbase: When investing in Coinbase, only invest an amount you can afford to lose. Don't invest any cash that you might need in the near future. It is generally recommended to fund a long-term, index fund-based investment plan before investing in a company that has recently gone public.
• Open a brokerage account: To buy stocks like Coinbase, you need a brokerage account. Brokerage accounts also offer access to other investments like mutual funds, bonds, and exchange-traded funds. It only takes a few minutes to open an account, and once the account is funded, you can place your Coinbase order on the broker's website or trading platform.
• Search for Coinbase stock: Search for Coinbase stock within your brokerage account platform by using the symbol "COIN".
• Decide how much you want to buy: Decide how much you want to buy in dollars or shares.

It is important to note that Coinbase's basic platform has a complex fee structure, and fees are not published in advance. Fees are "spread fees", calculated at the time the order is placed and may be determined by factors such as location, payment method, order size, and market conditions.

Coinbase's fee structure

Coinbase Transaction Fees

Coinbase does not charge any fees for holding supported cryptocurrencies in a crypto wallet. However, it does charge a miner's fee for transfers of cryptocurrency off the Coinbase platform. The fee structure is confusing and considers multiple factors, such as region, product, and payment method. Coinbase does not publish these fees, but they are usually 1% or higher. The final fee may vary from the estimate due to factors like market conditions and jurisdictional location. Coinbase will disclose the fees when the transaction is being filled.

Coinbase One Subscription Fees

Coinbase One is a subscription service that offers fee-free buying and selling of cryptocurrencies, with certain limitations. Members may still have to pay a spread fee. The spread is included in the quoted price and allows Coinbase to lock in the price while processing the order.

Network Transaction Fees

For transactions on cryptocurrency networks, Coinbase incurs and pays network transaction fees. When sending cryptocurrency from a Coinbase wallet to another wallet, a fee is charged based on the estimated prevailing network fees for a standalone wallet-to-wallet transfer. The final fee paid by Coinbase may differ from the estimate due to factors like batching transactions or changes in network congestion levels. All fees are disclosed at the time of the transaction.

Lightning Network Processing Fee

The Lightning Network is a micropayment network that enables bitcoin transfers without the usual transaction fee. When sending bitcoin via the Lightning Network, Coinbase charges a processing fee of 0.1% of the amount transferred.

Cashing Out and Adding Cash Fees

When adding or withdrawing cash, a fee may be charged depending on the payment method. It is important to review the fee details before completing the transaction. If USD is borrowed from Coinbase or an affiliate, and BTC collateral is sold, a flat fee of 2% of the total transaction is charged.

Trading and Spread Fees

When buying, selling, or converting cryptocurrencies on Coinbase, fees are charged and influenced by factors like payment method, order size, and market conditions. The spread is included in the quoted price, allowing Coinbase to lock in the price while the order is processed. Coinbase Advanced, however, does not include a spread as users interact directly with the order book.

Staking Fees

Coinbase charges a commission on staking rewards received from the network. The standard commission is 35% for ADA, ATOM, AVAX, DOT, MATIC, SOL, and XTZ. For eligible Coinbase One members, the commission is 26.3% for ADA, ATOM, DOT, SOL, and XTZ. The ETH commission rate can be found in the Asset Details.

Coinbase Advanced Fees

Coinbase Advanced, the advanced trading platform for experienced traders, has a maker/taker fee model. The fees have a maximum of 0.40% for makers and 0.60% for takers, based on the 30-day trailing volume. The fees decrease as trading volume increases.

ATM and Recovery Fees

There are no transaction fees for spending with the Coinbase Card. However, ATM operators may charge fees, as outlined in the Coinbase Cardholder Agreement. If an unsupported cryptocurrency is sent to a Coinbase account and is eligible for recovery, a network fee is charged, along with a 5% recovery fee for attempts valued over $100.

Coinbase's security protocols

Coinbase has several security protocols in place to protect its users' accounts and assets. Here are some of the key security measures:

• Recovery Phrase Security: When setting up a Coinbase Wallet, users are provided with a recovery phrase or seed phrase, which is a series of 12 simple words. This recovery phrase is crucial as it serves as the master password to the wallet. It allows users to access their crypto assets and NFTs from multiple devices. Therefore, it is essential to keep the recovery phrase safe, private, and in a secure location.
• Wallet Lock Feature: Similar to smartphone security, Coinbase Wallet has an auto-lock feature. By default, the browser extension wallet will automatically lock after 24 hours of inactivity. Users can also manually lock their wallet and modify the auto-lock timer for additional security.
• Secure Network Usage: Coinbase strongly advises against using public Wi-Fi networks for transactions. Public networks are hotspots for cybercriminal activities, including "man-in-the-middle attacks," where an unauthorized entity intercepts data transmitted over the network. Users should only use their Coinbase Wallet via a secure network connection to protect their assets.
• Regular Review of Connected Applications: Coinbase Wallet users often connect to various decentralised applications (dapps) and grant them permissions to view and manage their data, crypto, and NFTs. It is essential to periodically review and revoke access to any unused or untrusted dapps. This ensures that only authorised applications have access to the wallet.

Frequently asked questions