Coinbase Ipo: Where To Invest And How To Get In

Coinbase is a major US-based cryptocurrency exchange that went public in April 2021, marking a milestone in the world of cryptocurrencies as the first pure-play crypto trading company to list on a US exchange. Coinbase shares can be bought and sold on the Nasdaq exchange under the ticker symbol COIN. The company's direct listing, rather than a traditional IPO, means that it isn't raising new money, and its employees and existing investors will convert their ownership stakes into shares that are then listed directly on a stock exchange. Coinbase's share price has trended lower since its IPO, and the company has faced criticism for its complex fee structure. However, it stands out among cryptocurrency exchanges for its advanced security protocols and customer support.

Coinbase's IPO is a risky buy

Firstly, Coinbase's revenue is heavily reliant on cryptocurrency trading volume. In 2020, 86% of its revenue was generated from transaction fees, mainly from cryptocurrency trading. While a boom in crypto prices can boost Coinbase's trading volume and revenue, a crash in crypto prices will have the opposite effect. For example, in 2018, when cryptocurrencies crashed, and Bitcoin prices fell 72%, Coinbase's trading volume slid by over 80%, and the number of users making transactions fell by 67%. This direct correlation between Coinbase's revenue and crypto trading activity makes it a risky investment, especially for conservative investors.

Secondly, Coinbase's valuation is excessive and may not be justified. At a valuation of around $100 billion, it would be valued higher than some of the largest U.S. exchange operators, including Intercontinental Exchange, Nasdaq, CME Group, and Cboe Global Markets. Some analysts argue that Coinbase's valuation should be closer to $18.9 billion, an 81% decrease from the expected $100 billion. If Coinbase fails to meet the high expectations implied by its valuation, its stock price could easily collapse.

Thirdly, Coinbase's direct listing on the stock market may cause increased volatility in its share price. In a direct listing, there is no underwriter to determine a target price range for the company's shares, and the share price is completely dependent on market demand. This can result in higher volatility compared to a traditional IPO.

Lastly, Coinbase's success and revenue are highly dependent on the popularity and demand for cryptocurrencies. If crypto loses its appeal, and users stop exchanging on Coinbase, this could significantly impact its revenue and stock price.

Therefore, while Coinbase has strong potential in the growing crypto industry, its IPO is a risky buy due to the volatility of the crypto market, its high valuation, and its direct dependence on crypto trading activity and demand.

Coinbase's share price

However, Coinbase's share price is also susceptible to downturns in the crypto market. For example, in 2018, when cryptocurrencies crashed and Bitcoin prices fell by 72%, Coinbase's trading volume dropped by over 80%, and the number of monthly transacting users fell by 67%. This highlights the inherent risk in investing in Coinbase, as its performance is closely tied to the volatile cryptocurrency market.

In summary, Coinbase's share price has been volatile since its IPO, and the company's performance is closely tied to the crypto market's volatility. While Coinbase has strong user numbers and revenue growth, its share price may experience significant fluctuations due to the unpredictable nature of the cryptocurrency space.

Coinbase's business model

The company charges a commission fee for its users to use its platform and its users can trade with leverage. It has two accounts: regular and pro. The regular account charges higher commissions, while the company’s pro account has lower commission fees for users.

Coinbase's revenue model primarily moves around three main streams: transaction revenues, which by far represent the largest income source, subscription, and services revenue, and other revenues (crypto asset sales revenue and corporate interest income).

Coinbase generated $1.52 billion in transaction revenue, $1.4 billion in subscriptions and services, and $182 million in other revenue for 2023. In 2023, transaction revenue represented 49% of Coinbase’s total revenue, while subscriptions and services represented 45%.

Coinbase makes money in many ways, including trading fees, maker and taker fees, interchange fees, interest on cash, sales of software tools, and interest on personal loans.

Coinbase also makes money through credit card transaction fees, referral fees for promoting courses, a custody service, as well as profits from venture investments.

Coinbase's security protocols

Coinbase is a major US-based cryptocurrency exchange that facilitates the trading of crypto assets. In 2021, the company went public, marking a significant moment in the world of cryptocurrencies. Coinbase's shares are traded on the Nasdaq exchange under the ticker symbol "COIN".

Coinbase offers robust security protocols to protect its users' assets and data. Here are some of the key security features:

• Two-Factor Authentication: Coinbase prioritises account security by offering two-factor authentication, which adds an extra layer of protection beyond passwords. This helps prevent unauthorised access to user accounts.
• Recovery Phrase: Coinbase Wallet generates a recovery phrase, also known as a seed phrase, which consists of 12 simple words. This recovery phrase acts as the master password to the wallet. It is crucial to keep this phrase safe and private, as losing it will result in losing access to your assets.
• Wallet Lock: The Coinbase Wallet has an auto-lock feature, similar to smartphone lock functionality. Users can set the auto-lock timer to ensure the wallet is locked when not in use, providing an additional security measure.
• Biometrics and Passwords: Coinbase offers multiple security options, including biometrics, passwords, and security locks. These features provide diverse methods to secure user accounts and devices, making it more challenging for unauthorised individuals to gain access.
• Transaction Transparency: Coinbase Wallet provides transaction previews and estimates of how token balances will change before users confirm a transaction. This transparency allows users to make informed decisions and understand the impact of their transactions on their token holdings.
• Dapp Blocklist: Coinbase's security team uses a combination of public and private databases to protect users from malicious dapps (decentralised applications). If a user navigates to an application identified as dangerous, Coinbase Wallet will display a warning, helping to safeguard users and their crypto assets.
• Spam Token Management: Coinbase Wallet proactively hides assets known to be associated with malicious activity from the user's home screen. Additionally, it empowers users to report suspicious tokens that appear in their wallets, contributing to a safer crypto environment.
• Permission Management: Coinbase Wallet simplifies the process of reviewing and revoking dapp connections. This feature helps minimise the wallet's exposure to potential vulnerabilities and ensures users maintain control over the permissions granted to various applications.
• Ledger Hardware Wallet Compatibility: Coinbase Wallet's browser extension is compatible with Ledger hardware wallets, adding an extra layer of security. This integration provides users with greater peace of mind and further protects their private keys and crypto assets.
• Secure Network Connection: Coinbase strongly advises against using public Wi-Fi networks for transactions. Public networks are hotspots for cybercriminal activity, including "man in the middle" attacks, where an unauthorised entity intercepts data transmitted over the network.

By implementing these security protocols, Coinbase strives to protect its users' assets and personal information, fostering a more secure environment for crypto trading and storage.

Coinbase's competitors

Coinbase is a major US-based cryptocurrency exchange and platform where crypto assets may be traded. It is the largest crypto platform in the US and the second-largest in the world. Coinbase's direct listing in 2021 was a watershed moment, putting crypto firmly in the mainstream. However, it faces competition from other exchanges, including:

• Binance: The largest crypto exchange in the world by far, Binance is a Chinese company launched in 2018 that has grown explosively, offering more than 350 coins and generating spot trading volume of $757 billion in March 2021, about 10 times more than Coinbase. While it is ranked lower than Coinbase for quality and safety, it is widely seen as the most innovative, for instance, by unveiling one of the industry's first crypto derivatives platforms for more sophisticated traders.
• Kraken: A San Francisco-based crypto exchange that is considered a significant player and well-known name in the business.
• Gemini: A New York-based crypto exchange founded by the Winklevoss twins.
• Bitstamp: A London-based crypto exchange.
• Crypto.com: Offers a nice service if it wasn't for their massive spread and fees.
• Blockchain.com: One of the few exchanges that have been around for as long as Coinbase.
• Robinhood: A traditional brokerage that has expanded into crypto markets.
• Netcoins: A faster alternative to Coinbase for daily transactions.
• Pikamoon: A play-to-earn pokemon-style game that also lets you trade the in-game currency.
• Qurrex: An emerging hybrid exchange.
• Dafi: A hybrid exchange that is currently in Beta.
• Kucoin: A reputable option, particularly for those based outside the US.
• Huobi Global: One of the other largest crypto platforms, founded in China but moved its headquarters to the Seychelles.

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