Coinbase is preparing to go public this year. What impact will it have on the digital currency industry?

Source/LongHash

Coinbase, the largest compliant digital currency trading platform in the United States, announced on December 8, 2020 that it had submitted an S-1 listing application to the U.S. Securities and Exchange Commission (SEC). In the past eight years, two young people, Brian Armstrong, a former AirBNB engineer, and Fred Ehrsam, a former Goldman Sachs trader, have transformed a cryptocurrency exchange from San Francisco into a new generation financial platform serving 35 million users.

Interestingly, Coinbase focused on serving US customers in the early days, and its influence on the global blockchain industry has been increasing in recent years. Recently, with the rush of institutional investors from Wall Street in the United States, the price of Bitcoin (Bitcoin) accelerated to exceed $40,000 per coin in January 2021, breaking through the ten-year high. As of January 14, the market value of Bitcoin was approximately $695.5 billion, second only to the Internet giant Facebook and exceeding the market value of Chinese Internet company Alibaba.

A financial services platform that transforms the new paradigm

2018 was a milestone for Coinbase. Tiger Global Management led a $300 million Series E round of financing, which gave Coinbase a valuation of $8 billion at the time. Since then, rumors of Coinbase's IPO have spread.

More than two years after receiving financing, Coinbase did not rush to go public, but instead started to layout sectors and acquire startups, expanding its business territory and valuation. Through the reorganization of business modules and acquisitions, the outline of the new generation of Coinbase has gradually become clear. For example, the old version of GDAX exchange was upgraded to Coinbase Pro to achieve trading business upgrades, and its market share was expanded by acquiring trading infrastructure such as Tagomi and Routefire.

Currently, Coinbase has two business segments for institutions and individuals, including 9 products, covering early project incubation, coin issuance, institutional trading, payment, deposits and withdrawals, etc., realizing a complete ecological closed loop. For example, MicroStrategy, a US listed company that bought 70,000 bitcoins in a high-profile manner, is using Coinbase Prime's institutional services to help customers purchase and custody bitcoins through high-frequency algorithmic trading to reduce price impact, saving MicroStrategy millions of dollars in costs.

In the three years after the financing, Coinbase has gradually developed from an exchange focusing on digital currencies to a comprehensive digital currency service provider, and its valuation has increased accordingly.

Big changes in the board of directors

Before Coinbase submitted its S-1 listing documents, its board members and management structure had undergone major adjustments. The current board of directors consists of 9 people, including 2 founders, well-known Internet venture capitalists, and directors of several well-known Internet listed companies. Among them, 4 were newly appointed as board members in 2020, and board members of well-known emerging listed companies such as DoorDash and Snowflake and founders of early investment institutions have emerged to escort its strategic decisions.

Brian Brooks, former chief compliance officer of Coinbase, became the acting head of the U.S. Office of the Comptroller of the Currency (OCC) in April 2020, and has been committed to helping the compliance of U.S. dollar stablecoins at the regulatory level. After Coinbase announced the submission of the s-1 application on December 18, Goldman Sachs announced on December 19 that it would be responsible for the IPO. Then on December 23, the U.S. Securities and Exchange Commission (SEC) approved the company's direct listing on the New York Stock Exchange. Some media speculated that Coinbase might adopt the DPO (Direct Public Offering) method for listing. On December 29, TheBlock reported that Anil Gupta, the former head of investor relations at Facebook, would be responsible for the investor relations IR business of Coinbase's listing.

Coinbase is undergoing major changes in its management as it prepares for its IPO.

Mixed market reviews

Blockchain and cryptocurrency have always been controversial. Matt Huang, co-founder of blockchain venture capital firm Paradigm (a venture capital firm founded by Coinbase co-founder) and angel investor of ByteDance, once commented that cryptocurrency is an industry that is overvalued by people in the industry and underestimated by people outside the industry. This situation may also happen to Coinbase, which is about to go public. Cryptocurrency supporters are extremely optimistic, while conservatives believe that the digital currency experiment is a farce.

Blockchain practitioners also give different interpretations of Coinbase's valuation. Messari analyst Mira Christanto gives a valuation of $28 billion, and the Pre-IPO token product launched by the famous derivatives exchange FTX in December has a market valuation of about $74.7 billion as of January 14. These two figures are 3.5 times and 9.97 times the valuation of Coinbase's E round of financing three years ago. Blockchain media Bankless gives a valuation of up to $100 billion, and many blockchain industry practitioners have given positive market expectations, believing that Coinbase's listing will have a long-term positive impact on the entire digital currency industry.

On the other hand, macro investor Raoul Pal believes that Coinbase's IPO may have a negative impact on Bitcoin prices. Coinbase's IPO will absorb institutional investment in cryptocurrencies, and institutional liquidity will leave the Bitcoin market. Institutional investors may rationally choose to invest in Coinbase's stocks instead of buying Bitcoin directly. Too much attention from institutions may overdraw this emerging field in advance. Similarly, the ERC20 financing bubble in 2017, too much capital influx was followed by a three-year digital currency bear market.

In 2021, the institutionalization process of the digital currency industry has accelerated. In addition to Coinbase's application for listing, the stablecoin project Diem (formerly Libra) of the Internet giant Facebook is also expected to be launched in the first quarter. With the entry of giants and the surge in the price of Bitcoin, the mainstream media outside the industry have also shifted their voices from "air bubbles" to "technological revolution." Although market expectations vary, in the context of the world's accelerated "digitalization", the financial interest rate business that has survived for thousands of years is facing challenges from this generation of "futurists."

LongHash, understand blockchain with data.