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Last week, we learned that the Coinbase IPO might arrive sooner than later. And there couldn't be a more perfect time than now.
Coinbase is using a direct listing to go public, which means it can go public much faster than a traditional IPO (read all the details here).
That's huge, because it just got a massive catalyst…
Coinbase stock is hitting the public market at a historic moment, a perfect storm for anyone looking to invest in the company when shares are available.
Here's the catalyst that's pushing Coinbase toward unquestionable "buy" status.
Stars Align for Coinbase Stock
Coinbase and Robinhood have been giving traders better access to the markets all year. Bitcoin is up over 1,000% in the last 12 months, and the S&P 500 is at an all-time high of 3,837 – up 68% since the COVID-19 crash.
But Robinhood has a unique problem all of the sudden.
Starting in 2020, with lockdowns and big market moves, you had a surge in digital trading. Trading volume soared 156% from 1.4 million to 3.59 million between January and February. The CBOE Volatility Index (VIX) hit a record high of 82 in March, pointing to higher options prices and greater market instability.
This all sounded great for a little company called Robinhood. The pioneer in commission-free app trading was a driving force in the new retail investing boom. Robinhood hit its high of 13 million users during that time. The app even crashed with the flood of new traders joining.
Once trading resumed, the excitement didn't stop. After all, these new investors would have nothing to do besides watch stock charts on their phones under lockdown.
Robinhood was just starting to look like the wave of the future. So, talk began to circulate about its IPO prospects, and the news eventually came that we could expect a Robinhood IPO in 2021.
If you've been following the markets lately, you know that has changed. Robinhood just shelved its IPO after controversy brewed around the recent GameStop Corp. (NYSE: GME) squeeze.
On Jan. 28 (Thursday), the company stopped letting users buy shares of GameStop. The stock fell by 44% as trading volume plummeted.
The company said it had to limit buying of several stocks in order to keep up with capital requirements with clearing houses. Internet mobs complained that it was because hedge funds were in Robinhood's pocket and were sabotaging GameStop's runup.
Even if those hedge fund conspiracy theories aren't true, the damage has been done to the Robinhood IPO for at least the near term. Its main user base thinks the company derailed its trade to help out its Wall Street friends.
Users have been fleeing to other services like Fidelity and Public. A survey on Blind by an anonymous Microsoft employee, out of 4,725 responses, showed 76% planned on ditching Robinhood.
Robinhood did just raise $2.4 billion from private investment to support its trading spike, that's in addition to the $1 billion it already had. However, it won't be enough to save its image for now.
The difference in public perception of Robinhood from last year to now is almost night and day. It's essentially gone from Robinhood to Sherriff of Nottingham in 12 months.
Now, you're probably wondering, "What does this have to do with Coinbase?"
Why This Is Amazing for the Coinbase Direct Listing
It's not merely that Robinhood lost the trust of its users. There are plenty of other digital brokers out there by now – many have flocked to WeBull as a similar alternative.
The real story here is not a loss of trust in a single company, but a loss of trust in a system.
People investing in cryptocurrency were already worried about a weakening dollar. Dovish Fed policy and a weakening economy sent people piling into Bitcoin in the last couple months as the cryptocurrency soared 1,200% to above $40,000.
Outlets have started to voice their support for owning at least some Bitcoin, celebrities such as Elon Musk have started voice interest, and banks like Goldman Sachs Group Inc. (NYSE: GS) have begun to accept crypto as a legitimate form of payment in the last year.
This is all money in Coinbase's pocket.
WARNING: It's one of the most traded stocks on the market every day – make sure it's nowhere near your portfolio. WATCH NOW.
The company runs what is essentially an exchange for cryptocurrency, featuring about 50 different cryptocurrencies to choose from.
We are headed for a more crypto-friendly world, away from what we are comfortable knowing as the "traditional" stock market. And Coinbase is arguably the best-known medium for trading crypto.
Almost reverse to Robinhood, Coinbase's public perception strengthens when things get tough for traditional markets.
Sure, the "meme stock" thing is unpredictable, but it also shows us how valuable memes are – memes are what compose perception. And the Robinhood controversy has shown the increasing value of perception in today's digitally driven market.
That said, if both stocks were to go public right now, at the same time, it is likely that many of the investors who initially planned on buying Robinhood stock could be persuaded to buy Coinbase shares instead.
The Bottom Line for the Coinbase IPO
Another reason that the Coinbase IPO is a buy would be that it has confirmed a nontraditional approach to going public.
Of course, it's not a wacky crypto offering like many crypto fans were hoping for (to legitimize alternative currency), but it's the next best thing. It lowers the spectacle of a pure IPO and protects current Coinbase investors.
The direct listing follows suit with several other tech companies in the last year: Spotify Technology SA (NYSE: SPOT), Slack Technologies Inc. (NYSE: WORK), and Palantir Technologies Inc. (NYSE: PLTR).
Instead of trading on the NYSE, Coinbase will go to the Nasdaq under the stock ticker "COINB."
With Coinbase accelerating its time to market, avoiding all the SEC and broker meetings, it's hard to see it as anything less than a tactical move, in lieu of the Robinhood trouble. Coinbase wants to take advantage of the moment.
A failed Robinhood IPO and a faster Coinbase IPO makes a fairytale for the decentralization crowd.
And while a direct listing enables stabler prices ahead of the listing, the meme world is liable to launch that Coinbase price to the moon in time.
Meanwhile, "Dogecoin," a volatile cryptocurrency that is purely "meme," has doubled peoples' money fighting to reach $1 in value before the end of 2021.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.