The bull move in bitcoin since October has been sizzling. The price has gone from about $7,500 to $23,395. Consider that bitcoin is trading now at all-time highs.
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And there is a company that has benefited quite nicely from this: Coinbase. The company is the largest broker and custodian for cryptocurrencies in the U.S.
Coinbase also recently filed for an IPO (Initial Public Offering). Assuming bitcoin and other cryptocurrencies do not suddenly nose dive – which is certainly no guarantee with this volatile market – this offering should be one of next year’s hottest deals. Keep in mind that it will be the only pure-play way for investors to get exposure to this asset class via public markets.
Then what might this IPO mean for bitcoin? Let’s take a look:
Coinbase and Bitcoin
Back in the summer of 2012, Brian Armstrong, Ben Reeves and Fred Ehrsam founded Coinbase. The team had strong complimentary skills. Armstrong was a former engineer at Airbnb (NASDAQ:ABNB), Reeves was the co-founder of Blockchain.info and Ehrsman worked at Goldman Sachs (NYSE:GS) as a trader.
At first, the company developed an app to make it easier to buy and sell bitcoin via bank accounts. The founders also got strong interest from venture capitalists like Union Square Ventures, and Andreessen Horowitz.
A key to the strategy was to work with regulators as the goal was to make cryptocurrencies mainstream. But it was also important that the company was aggressive in forging partnerships, which helped to built an powerful ecosystem.
As of now, Coinbase has become a large operation. Here are some of the metrics on the business:
- More than 35 million investors across 100 countries.
- Over $25 billion in assets on the platform.
- More than 1,000 employees.
However, since the company’s IPO filing was confidential, there is no public access to the financials and other details. But this document will be made available in the next few weeks.
The Implications for the Market
The Coinbase IPO will certainly be a big-time validator for bitcoin and other popular cryptocurrencies. The IPO will definitely garner much attention. In a sense, it could be something like the Netscape offering in the mid-1990s that significantly raised the visibility of the internet.
Institutional investors will also see the Coinbase IPO as a way to get exposure to cryptocurrencies. For example, there may be some skepticism about buying these assets directly. Rather, the Coinbase stock may seem like a safer approach to participate in the market – and easier.
Now it is unclear what type of IPO the company will pull off. It may actually be a direct listing, which means that the shares will be sold to the public without underwriters. This is often considered a fairer approach since all investors have a chance to get the shares at the offering price.
Although, Coinbase will not raise any money in the transaction. Yet this may not be an issue. After all, the last time the company raised money was two years ago. The round was for $300 million and the valuation was set at over $8 billion. In other words, the business has probably been generating positive cash flows – so there has been no need to raise additional capital.
The core fundamentals of the business also look durable. The fact is that cryptocurrencies have attracted some of the world’s top investors, such as Paul Tudor Jones and Stanley Druckenmiller. There has also been a boost from the adoption from large payments platforms like PayPal (NASDAQ:PYPL) and Square (NYSE:SQ). All these forces are likely to continue to propel the bullishness in cryptocurrencies.
Bottom Line on Coinbase IPO
There is buzz that Coinbase may fund its IPO with cryptocurrencies. Yet this could be difficult to pass muster with regulators. It may also limit upside of the IPO as a large number of potential investors may not want to take this approach, including major institutions.
But regardless, the Coinbase IPO will be a big event – and it will happen soon. The offering is likely to hit the markets in February or March.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.