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After years of anticipation, we're very close to the first genuine crypto IPO in the U.S. stock markets.
Last week, Reuters reported that crypto exchange company Coinbase has "started plans" for an initial public offering.
The Coinbase stock offering could happen as early as this year, the report said, but some time in 2021 is more likely.
Most assume the ticker symbol will be COIN, although the folks on StockTwits have been using CBASE.
The company has not yet sought the approval of the U.S. Securities and Exchange Commission (SEC), but is said to be in talks with investment banks and law firms.
This news should come as no surprise to Money Morning readers. I have long considered Coinbase to be the AOL of crypto. I first tagged the firm as a potential crypto IPO as far back as 2014. Three years later, I declared Coinbase the frontrunner in the race to be the first crypto company to go public.
This is the crypto IPO Wall Street has been waiting for…
Why a Coinbase IPO Will Be a Big Deal
While we already have a few publicly traded crypto companies, they tend to be thinly traded penny stocks that got listed via the "back door" method. That's when a company buys another with an existing listing.
A Chinese maker of Bitcoin mining equipment, Canaan Inc. (NASDAQ: CAN), actually did have an IPO on the Nasdaq last November. But few noticed the micro-cap company, and those who did soon soured on it. Investors filed a class-action suit against Canaan in March.
Another Chinese mining equipment maker, Ebang International Holdings Inc. (NASDAQ: EBON), went public on the Nasdaq on June 26. Again, few noticed.
But these smallish IPOs have lacked the muscle required to grab Wall Street's attention.
That's what Coinbase – a large, well-known U.S.-based company – will deliver.
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Founded in 2012, when crypto was still in its infancy, Coinbase has raised $547.3 million through nine rounds of venture capital funding. Its current valuation is $8 billion.
The impressive roster of Coinbase "angels" includes Andreessen Horowitz, Union Square Ventures, former Citigroup CEO Vikram Pandit, and the New York Stock Exchange.
And unlike many tech companies that have gone public in recent years, Coinbase is already profitable. According to research firm BQ Intel, Coinbase generated a profit of $163 million in 2019 on revenue of $543 million. The analysts estimated Coinbase made an average profit margin of at least 30% over the past three years.
The big investment banks will all be fighting for a piece of this.
What a Coinbase Stock Offering Means for You
A Coinbase stock offering will open up crypto investing to a much wider group of investors.
Most importantly, it will provide a "non-crypto" means of gaining exposure to cryptocurrency. Many people have avoided buying crypto outright because of its high risk, volatility, and issues with secure custody.
You'll be able to buy Coinbase stock through any ordinary brokerage. And you'll be able to use standard investing tools to value the company – another reason many have avoided cryptocurrencies.
A Bitcoin exchange-traded fund (ETF) would have filled this role better, but the SEC has failed to approve one. A Coinbase IPO would be the next best thing.
A Coinbase IPO also will trigger a wave of crypto companies going public. That's what happened in 2011, when LinkedIn was the first of several splashy social media IPOs. (By the way, LinkedIn's valuation was one-fifth of Coinbase's – $1.6 billion – just prior to filing for its IPO.)
Speaking at the World Economic Forum in January, Ripple CEO Brad Garlinghouse not only predicted such a wave – he suggested his company would be part of it.
"In the next 12 months, you'll see IPOs in the crypto/blockchain space," Garlinghouse said. "We're not going to be the first and we're not going to be the last, but I expect us to be on the leading side… it's a natural evolution for our company."
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Another notable crypto firm known to be considering a U.S. IPO is crypto lender BlockFi.
After that it's speculation. But top candidates include:
- Circle, a payments tech company that owns the Poloniex crypto exchange.
- Binance, a Malta-based crypto exchange.
- Genesis Mining, which offers crypto cloud mining to customers in more than 100 countries.
Finally, a Coinbase stock offering will draw more attention to crypto in general. That should give crypto prices a boost, led by Bitcoin.
All that is good news. But a Coinbase IPO, because it's a crypto company, is also likely to have a few quirks.
Why a Crypto IPO Is a Conflicted IPO
While we're seeing more links between crypto companies and traditional finance, the crypto community has no love for Wall Street.
Remember, Satoshi Nakamoto created Bitcoin in 2009 in reaction to the 2008 financial crisis. It was meant to be a decentralized alternative to the powerful big banks and inflationary fiat currencies.
So we may see Coinbase try to avoid a straight-up IPO to stay true to its crypto roots.
Coinbase co-founder Fred Ehrsam said in May that the firm is "spiritually" more suited to use a blockchain-based token offering (like a security token offering) as a path to go public.
But the SEC would need to approve an STO, even if Coinbase tried to do a hybrid IPO/STO. Still, it's a possible wrinkle.
In a direct listing, the angel investors sell shares directly to the public. This bypasses the Wall Street banks, which would please crypto enthusiasts.
But no matter how Coinbase chooses to go public, those early investors will make a killing.
For example, Coinbase had a valuation of just $21 million in 2013. As I said earlier, Coinbase is valued at $8 billion today. That's a gain of 37,995%!
Those angel investors turned the equivalent of $1,000 into $380,950 in just seven years.
No matter how well Coinbase stock does when it goes public, new investors are not likely to see gains like that for a very long time – if ever.
For decades, ordinary investors had no "early access" to companies like Coinbase. But thanks to the Jumpstart Our Business Startups (JOBS) Act of 2012, they do now.
That means anyone can now enjoy the rich rewards of being an angel investor…
You can be right there – and be one of the first to invest in the next Steve Jobs, the next Elon Musk, or even the next Coinbase. And because you're there at the beginning, the upside is infinitely greater. For so long, regular folks have been locked out… but not anymore.
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.