Coinbase operates the largest cryptocurrency exchange in the U.S. and is now prepping for an IPO. It will likely be one of this year’s biggest, as the buzz is that the valuation could exceed $100 billion.
The company got its start back in 2012. The cofounders included Brian Armstrong, a former engineer at Airbnb, and Fred Ehrsam, who was a trader at Goldman Sachs. The mission was to make investing and transacting in cryptocurrencies easier, more efficient and fairer.
And yes, the founders did a standout job in executing on this. As of now, the platform has 43 million retail users and 7,000 institutional clients. There are also 115,000 partners across over 100 countries.
Now in terms of the growth, it has been choppy because of the volatility of cryptocurrencies. Then again, for 2020 the revenues more than doubled to $1.3 billion and the profits came to $322 million. The assets under custody are about $90 billion.
“To a certain degree, you can say they were ahead of our time,” said Collin Plume, who is the President and CEO of Noble Gold Investments. “The platform won’t win an aesthetic design award but it is user friendly. You can go in there with absolutely no idea about trading or crypto and get started in five minutes. You really can’t get 43 million users with a platform that requires a tutorial to use. Blame it on Facebook or Google but the digital world is filled with impatient and busy people who are used to getting what they want with nothing more than a click. Coinbase made trading easy.”
In the IPO prospectus, Armstrong has set forth a bold vision of how cryptocurrencies have the potential to upend the global financial system. He writes: “The current financial system is rife with high fees, delays, unequal access, and barriers to innovation. In many countries, citizens don’t have access to sound money, a functioning credit system, or even basic property rights. If the world economy ran on a common set of standards, that could not be manipulated by any company or country, the world would be a more fair and free place, and human progress would accelerate.”
He came up with this vision when he read a white paper about Bitcoin in 2010. This convinced him that every financial transaction should be as easy as sending an email.
According to Armstrong: “Trading and speculation were the first major use cases to take off in cryptocurrency, just like people rushed to buy domain names in the early days of the internet. But we’re now seeing cryptocurrency evolve into something much more important. People are using cryptocurrency to earn, spend, save, stake, borrow, lend, vote, and perform many other types of economic activity.”
Yet the cryptocurrency market is still very much in the early phases—and it seems likely there will continue to be boom-bust cycles. Note that there have been massive bear moves in 2013-2015 and 2017-2019.
But the good news for Coinbase is that it already has massive scale and a broad-assortment of services and tools. The company has also been smart to be diligent with compliance, invest in cybersecurity and work with regulators.
Coinbase plans to have a direct listing. This means that all investors will have a chance to get shares at the offering price and that there will likely not be a big spike in the price.
“The ability to set a true market price given the significant cash flows being generated makes perfect sense for Coinbase at this stage and also doesn’t prevent the firm from accessing the public markets to raise additional capital in the future,” said Bill Barhydt, who is the founder and CEO of Abra.
The offering will probably happen sometime next month and the shares will be listed on the NASDAQ under the ticker of COIN.
Tom (@ttaulli) is an advisor/board member to startups and the author of Artificial Intelligence Basics: A Non-Technical Introduction, The Robotic Process Automation Handbook: A Guide to Implementing RPA Systems and Implementing AI Systems: Transform Your Business in 6 Steps. He also has developed various online courses, such as for the COBOL and Python programming languages.