Call it crypto’s coming-out party. Coinbase, based in San Francisco, is the first major cryptocurrency startup to go public on a U.S. stock market. It did so at a valuation that rivaled that of Airbnb and Facebook when they went public.
Cryptocurrency advocates — many of whom expect the technology to upend the global financial system — are celebrating the watershed as vindication of their long-held belief in their cause’s potential.
Coinbase’s listing answers the question “Is crypto a real thing?” said Bradley Tusk, a venture capital investor whose firm, Tusk Venture Partners, backed Coinbase. “Any industry that can launch an IPO of this size is without a doubt a real thing, and it’s proven by the market.”
The listing gives mainstream investors who may be wary of directly buying risky digital currencies the ability to own stock in a Securities and Exchange Commission-approved business that facilitates the transactions.
It also gives the financial world a look at Coinbase’s healthy profits — something that most other highly valued tech startups lack — and ballooning adoption. Coinbase, which has 1,700 employees and 56 million registered users, reported an estimated $730 million to $800 million in net profit in the first three months of the year. It brought in $1.8 billion in revenue during that period, a ninefold increase from a year earlier.
But Coinbase’s listing also raises a question about the future of digital currency. Industry evangelists have long predicted that cryptocurrency and its underlying blockchain technology could bring about a decentralized financial system without governments or banks — a revolution rivaling that of the internet. That ethos is reflected in Coinbase’s plan to “create an open financial system for the world” and “increase economic freedom.”
But so far, cryptocurrency is mostly a vehicle for financial speculation and trading. Few people want to use Bitcoin for everyday purchases like coffee because its price is so volatile. It has also become a lightning rod for environmental concerns because its technology uses a tremendous amount of computing power and electricity.
Many early buyers have become wildly rich by simply holding their crypto or “buying the dip” when prices fall. Others ruefully relay tales of the sushi dinner they bought with bitcoins years ago that would be worth $200,000 today, or the million-dollar pizza.
Coinbase eases that trading by acting as a central exchange. Before it and similar services were created, people had to set up their own digital wallets and wire money. “Can it be anything more than an asset class?” Tusk asked. “That’s still very much up in the air.”
Coinbase’s trajectory has followed the booms and busts of the broader crypto world. Brian Armstrong, a former software engineer at Airbnb, and Fred Ehrsam, a former trader at Goldman Sachs, started in the company in 2012, when Bitcoin was the only digital currency and it was not very useful or valuable.
“It was perceived as unserious or shady,” just like the early days of the internet, said Marc Bernegger, an investor at Crypto Finance Group, an asset manager in Switzerland.
Headlines about Silk Road, a marketplace for buying and selling drugs and weapons with Bitcoin until federal authorities shut it down, and Mt. Gox, a crypto exchange that collapsed under accusations of theft and embezzlement, further tarnished the young industry.