What is Coinbase?
Coinbase is a cryptocurrency platform that allows people to buy, sell and store cryptocurrencies such as bitcoin. The company believes cryptocurrency is ‘the future of money and a catalyst for creating an open financial system around the world’ and wants to allow everyone to be able to participate in the cryptocurrency space.
Coinbase has over 43 million registered users in over 100 countries. It has facilitated over $455 billion worth of trades since it was founded and holds over $90 billion worth of assets on its platform.
How does Coinbase make money?
Coinbase has several income streams. Its primary revenue comes from the commission it charges each time somebody buys or sells a cryptocurrency and from margin fees. It also generates income by allowing other companies and partners to use its software.
The Coinbase platform is at the heart of the business, and this is complimented by Coinbase Pro, a distinct app targeting more advanced traders. It’s Wallet service stores cryptocurrencies for retail traders free of charge.
It also offers a Prime service that provides a turnkey solution for brokerages, exchanges and fintech companies that enables them to easily embrace cryptocurrencies, while its Custody service provides a way for them to store their cryptocurrencies in a ringfenced and independently-capitalised business. It is also empowering businesses by giving them the tech needed for them to accept cryptocurrencies as payment.
The company continues to expand into all areas of the wider cryptocurrency space in an effort to become a trusted market leader. For example, Earn is a site that allows people to earn cryptocurrencies by learning more about cryptocurrencies, blockchains and other related topics to encourage more people to adopt them.
It has also invested in over 60 ventures to help support the wider ecosystem, such as cryptocurrency miner Coinmine, crypto real estate investment platform RealtyBits, decentralised contract platform UMA and crypto collectibles app OpenSea. It has also worked with a number of other companies on an opensource project to launch a stablecoin named USD Coin, which is pegged to and fully backed by the US dollar.
Is Coinbase profitable?
There is limited insight into Coinbase’s finances as it is still a private company, but it is reported to be profitable. Forbes reported that Coinbase was generating annualised revenue of around $2.3 billion in the last three months of 2020 and boasted a net profit margin of around 20%. Data from Pitchbook also suggests Coinbase has been profitable since late 2017.
Coinbase’s finances are likely to be as volatile as the cryptocurrencies it trades in, with most of its income relying on the volumes of trades being made. There has been a surge in interest in bitcoin and other cryptocurrencies this year, reflected by bitcoin’s rally past the $50,000 mark for the first time, all of which benefits Coinbase.
Who are Coinbase’s competitors?
There is no shortage of cryptocurrency platforms, with hundreds competing for volumes. Many try to cater to a broad market and offer a wide range of cryptos, while others focus on particular niches such as stablecoins.
The biggest and best rated exchange, according to CoinMarketCap, the most-referenced price-tracking website for cryptoassets, is Binance. Other major players in the space include Kraken, Huobi Global, Bitfinex, Bithumb, Bitstamp and Bittrex.
Data from CoinMarketCap suggests Coinbase is not one of the largest exchanges in terms of global trading volumes. However, it is thought to be the largest cryptocurrency exchange in North America. Plus, the site rates Coinbase as one of the top platforms using a scoring method that analyses ‘traffic, liquidity, trading volumes, and confidence in the legitimacy of trading volumes reported’.
What is Coinbase’s strategy?
One of the reasons Coinbase has become so well-known is because it has concentrated on becoming the most trusted exchange and having the easiest to use platform. It wants to do what the internet did for information by creating an open financial system that is ‘not controlled by any one country or company’, although there is an argument that the decentralised nature of cryptocurrencies is undermined by companies like Coinbase controlling trade.
Ultimately, Coinbase’s future will come down to the level of adoption of cryptocurrencies by people, businesses and institutions – all of which seem to have increasing appetite for cryptos as the years go by.
Coinbase is working toward goals to ensure that every payment in the world is as fast and cheap as sending an email and wants anyone with a smartphone to be able to access financial services or sell products freely without any middlemen.
Who are the directors of Coinbase?
Coinbase was founded by Brian Armstrong and Fred Ehrsam in 2012. Both of them are still on the board with Armstrong holding the role of chief executive and Ehrsam holding a non-executive position.
There are number of high profile non-executives on the board including venture capitalist Fred Wilson, crypto investor Marc Andreessen and the former CFO of Cisco Kelly Kramer.
|
Position |
Name |
|
Co-Founder and Chief Executive |
Brian Armstrong |
|
President and Chief Operating Officer |
Emilie Choi |
|
Chief Product Officer |
Surojit Chatterjee |
|
Chief Financial Officer |
Alesia Haas |
|
Chief People Officer |
LJ Brock |
|
Chief Legal Officer |
Paul Grewal |
|
Executive Vice President of Engineering |
Manish Gupta |
When is the Coinbase IPO?
Coinbase confidentially filed for an initial public offering (IPO) in December but is now expected to bypass the traditional process by conducting what is known as a direct listing. This means it will simply list its existing stock on an exchange to allow existing shareholders to sell their shares and avoid having to hire investment banks to drum-up interest in new shares. Other big stocks that have gone public using a direct listing include Spotify and Palantir.
There is not yet a firm date for the Coinbase IPO but a direct listing often allows a company to pull the trigger much quicker than conducting a traditional listing. There is also no guarantee that Coinbase will go ahead with the listing, although it is expected to go public in 2021 to capitalise on the appetite for new tech listings and the surge in bitcoin.
There are some major hurdles Coinbase and the wider cryptocurrency space will have to overcome if they want to join regulated financial markets. With cryptocurrencies still largely operating under a Wild West regime, regulatory changes will be the single biggest risk for the company going forward, which will put the company’s internal workings and finances under much more scrutiny.
You can read more about the other top potential US IPOs that could happen in 2021 here.
How much is Coinbase worth?
The big question everyone wants the answer to ahead of Coinbase going public is how much is the company worth? The volatile nature of cryptocurrencies means its valuation could prove to be as volatile as the cryptos themselves.
In the current market, with bitcoin climbing to new highs and interest in cryptos increasing as Fear of Missing Out, of FOMO, kicks in, Coinbase is expected to fetch a high price. A report from Coindesk in February suggested trades on the Nasdaq Private Market valued Coinbase at $77 billion.
Other media reports have speculated on Coinbase’s worth with valuation estimates ranging from $50 billion to over $100 billion. In truth, nobody knows what price Coinbase will go for as it depends on the market conditions at the time but, considering cryptos are on the rise right now, this should encourage Coinbase to go public sooner rather than later, when the latest rally risks temporarily fizzling out.
Notably, at these valuations, Coinbase could be one of the largest exchanges on the market. Intercontinental Exchange, the owner of the New York Stock Exchange, is currently worth around $64 billion, while Nasdaq Inc is valued at $24 billion.
It is also worth noting that initial liquidity could be based on the number of shares existing shareholders are willing to part with if it goes ahead with a direct listing and doesn’t issue new stock. If early investors don’t provide enough shares to meet demand, then this could push prices up once it has listed.
How to trade Coinbase shares
You will be able to trade Coinbase shares with City Index as soon as the company has completed its listing and its shares are publicly-traded.
In the meantime, you can find out more about trading cryptocurrencies on our award-winning platform