Coinbase Ipo: When To Invest And What To Know

Coinbase is a cryptocurrency exchange that went public on April 14, 2021, marking a significant moment in the cryptocurrency world. The company opted for a direct listing on the NASDAQ stock exchange under the ticker symbol COIN, instead of a traditional initial public offering (IPO). This means that Coinbase employees and existing investors converted their ownership stakes into shares listed directly on a stock exchange, bypassing the need for underwriters. While this move eliminates the cost of underwriting fees, it also means that the company's shares are subject to greater volatility, as there is no target price range set by underwriters.

Given the inherent risks associated with investing in IPOs, particularly in the volatile cryptocurrency market, it is essential for investors to conduct thorough research and carefully consider their investment strategies before deciding to invest in Coinbase or any other IPO.

Coinbase's IPO date and listing price

Coinbase, a major US-based cryptocurrency exchange, went public on April 14, 2021, marking a significant milestone in the world of cryptocurrencies. The company's shares opened at $381 on the Nasdaq stock exchange under the ticker symbol "COIN", becoming the first pure-play crypto trading company to list on a US exchange.

Coinbase chose to go public through a direct listing rather than a traditional initial public offering (IPO). In a direct listing, a company floats its shares on a stock exchange without hiring banks to underwrite the transaction, as is typically done in an IPO. This means that the company's insiders or shareholders sell stock directly to the public through the exchange.

The reference price for Coinbase was set at $250 a share on the eve of its listing, valuing the company at over $65 billion. On the day of its public debut, Coinbase stock opened around $350, or 40% above its reference price.

Coinbase's decision to go public through a direct listing posed some unusual risks for investors. One key difference is that in a direct listing, there is no guaranteed market for the new stock, as the number of shares floated depends on whether insiders want to sell. This can result in a thin or non-existent market, making the stock potentially difficult to access and highly volatile, especially in the early days of trading.

Another distinction is that in a direct listing, only insiders are selling stock to outsiders, whereas in an IPO, both the company and insiders may sell shares. In the case of Coinbase, this meant that insiders could sell and release all their shares onto the market without any restrictions, creating a perception that insiders might be taking advantage of outsider investors.

Despite these risks, Coinbase's public debut was highly anticipated, and the company's stock performance has been closely watched by investors eager to gain exposure to the cryptocurrency market.

Coinbase's business model

Coinbase offers accounts to customers for cryptocurrency trading, with over 25 cryptocurrencies available to trade, including Bitcoin, Ethereum, Litecoin, and others. The company charges a commission fee for its users to use its platform, with a tiered commission structure based on location and total transaction volume. For example, Coinbase charges a flat fee of $2.99 for transactions between $50 and $200 in the United States.

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

• Coinbase Wallet: a standalone app that allows users to store their cryptocurrencies and facilitates the exchange of goods and services.
• USD Coin (USDC): the company's own cryptocurrency, which is tied to the US dollar and can be used to facilitate global transactions.
• Coinbase Card: a physical VISA debit card that allows customers to spend their cryptocurrencies in the physical world.
• Coinbase Commerce: tools for companies to accept digital currency payments, with plugins available for major eCommerce platforms.
• Coinbase Pro and Prime: platforms aimed at professional traders, offering advanced features and lower commission fees.
• Coinbase Earn: a service that offers courses about new cryptocurrencies, with users receiving these currencies as a reward upon completion of a course.
• Coinbase Custody: a service that holds and stores crypto-related assets on behalf of other parties, with an implementation fee of up to $10,000 and an annual custody fee of 50 basis points.
• Coinbase Analytics: a software that allows users to analyse cryptocurrencies on a macro and micro level, sold on a contractual basis.
• Coinbase Ventures: a dedicated investment team that finances early-stage companies in the blockchain and cryptocurrency space.

In addition to trading fees, Coinbase generates revenue from credit card transaction fees, referral fees, interest on cash, sales of software tools, and interest from personal loans.

Coinbase's share price analysis

Coinbase's IPO was on April 14, 2021, and its share price has trended lower since. The company's stock gives investors exposure to the cryptocurrency market without directly investing in cryptocurrency.

Coinbase shares can be bought and sold on the Nasdaq exchange under the ticker symbol COIN. The company's share price is analysed using both technical analysis and fundamental analysis. Technical analysis focuses on chart patterns, technical indicators, and historical price action, while fundamental analysis examines the company's net revenue and profit and loss statements.

Analysts' consensus on Coinbase stock is "Buy", indicating that the stock is expected to outperform the market over the next twelve months. The average 12-month price forecast is $248, representing an increase of 38.62% from the latest price. However, it's important to note that investing in Coinbase comes with risks, as the company's performance is closely tied to the volatile cryptocurrency market.

When considering investing in Coinbase, it's crucial to understand the potential risks and perform thorough research. This includes analysing the company's revenue, earnings, user growth, competition, and management. Additionally, investors should have a long-term investment strategy, preferably with a horizon of at least one year, due to the volatile nature of the cryptocurrency market.

How to buy Coinbase shares

Coinbase is a major US-based cryptocurrency exchange that allows users to trade crypto assets. Coinbase shares can be bought and sold on the Nasdaq exchange under the ticker symbol "COIN".

• Research the future of cryptocurrency: Before investing in Coinbase, it is important to understand the market and the potential success of your investment. The popularity and trading volume of cryptocurrencies will impact the performance of Coinbase shares.
• Understand Coinbase's role in the future of crypto: Consider whether Coinbase is well-positioned to benefit from the growing popularity of cryptocurrencies. This involves analysing the company's revenue, user growth, competition, and management.
• Decide how much to invest: Determine the amount you want to invest in Coinbase shares. Remember that investing in any company carries inherent risks, so only invest an amount you are comfortable losing.
• Open a brokerage account: You will need a brokerage account to buy Coinbase shares. You can open an account with a broker that provides access to the Nasdaq exchange, where Coinbase shares are traded.
• Search for Coinbase stock: Log in to your brokerage account and search for "COIN" to find Coinbase shares.
• Place a buy order: Decide on the number of shares you want to purchase and place a buy order through your brokerage account.

It is important to note that you cannot buy Coinbase shares directly from the Coinbase platform. You will need to use a brokerage account to buy and sell Coinbase shares on the Nasdaq exchange.

Coinbase's direct listing risks

Coinbase's direct listing on the Nasdaq stock exchange on 14 April 2021 was unusual for a company of its size. Direct listings are typically reserved for smaller, under-the-radar firms. Here are some of the risks associated with Coinbase's direct listing:

Thin or non-existent market

In a traditional IPO, investment banks round up buyers and create hype to attract interest in the deal itself and in the aftermarket where it can be bought by the general public. However, in a direct listing, the number of shares floated on the market depends on whether insiders want to sell and how much. This means there may be no guaranteed market for the new stock, making it potentially difficult to access, at least initially.

Volatility

With relatively few shares traded on the exchange, the price of Coinbase stock could fluctuate significantly, especially at the beginning. In a traditional IPO, underwriters support the stock price by marketing it to institutional investors, setting an IPO price, and using technical means to keep the stock price above the IPO price in the short term. However, because a direct listing bypasses investment banks, it doesn't enjoy the same benefits and may be subject to higher volatility.

Dual-class shares

Coinbase went public with a dual-class share structure, which gives some insiders, often officers, extra voting control. In Coinbase's case, insiders hold more than 60% of the voting control. A dual-class share structure is not popular with outside investors as it gives them less say in how the company is run.

Insider selling

In a direct listing, the company itself is not raising cash, so only insiders are looking to cash out. In a traditional IPO, investors have some protection as conditions often restrict insiders from selling further shares in the public market until some time after the IPO. However, restrictions are typically lower in a direct listing, and in the case of Coinbase, none of its shareholders are under a lock-up, so they could sell and release all their shares onto the market.

Frequently asked questions