Coinbase on Wednesday became the first major crypto player to go public, with an $85.8 billion valuation that moves the digital currency market closer to the mainstream.
The San Francisco-based exchange's direct listing on the Nasdaq is both a milestone and a test run of the public's appetite for digital currency. In the past year, cryptocurrency has been embraced by such brands as Tesla and Square, while Wall Street giants including Goldman Sachs and Morgan Stanley have taken steps toward offering bitcoin and other digital assets to investors, CNBC has reported.
The Nasdaq gave Coinbase -- which trades under the ticker "COIN" -- a reference price of $250 a share on Tuesday. It opened at $381 on Wednesday, soaring as high as $429 before sliding. It ended the session at $328.28.
"Coinbase is not just any crypto play; they're one of the linchpins to the global crypto ecosystem," said Dan Ives, managing director of equity research at Wedbush Securities. "Ultimately, how the Coinbase IPO and reception plays out is important for many other companies that are potentially following on the crypto front. It's more than just Coinbase."
Though interest in virtual currencies has skyrocketed -- the market has doubled since January and smashed past $2 trillion this week -- the landscape is peppered with risk. Cryptocurrency is volatile, and lawmakers have expressed an urgent need for regulation to combat criminal activity. In 2020, global "dark net" markets brought in a record $1.7 billion in crypto revenue, according to Chainalysis, a company that analyzes data relating to cryptocurrency.
Coinbase provides a variety of crypto-related financial services and aims to "create an open financial system for the world," according to the prospectus it filed with the U.S. Securities and Exchange Commission. At the end of last year, Coinbase had 43 million users from more than 100 countries on its platform, as well as 7,000 retail and financial institutions. It has roughly 1,700 employees and $1 billion in cash on hand.
Coinbase's fortunes are closely aligned with bitcoin, which has more than doubled in value since the start of the year and swelled past the $63,000 mark for the first time Tuesday. The Coinbase exchange, which gets more than 95% of its revenue from transaction fees, has raked in $1.3 billion in the past year as bitcoin made its meteoric rise.
"[Crypto] is still seen by many as a risky proposition and for good reason," Danni Hewson, financial analyst with AJ Bell, wrote in a commentary Tuesday. "But it's also become a part of the global cash conversation. "
About a third of adults worldwide -- 1.7 billion -- are unbanked, according to The World Bank. But global access to financial services is deepening in low- and middle-income economies, according to the International Monetary Fund's 2020 financial access survey. Progress made in bringing more people into the financial system is partly attributed to "innovations such as digital financial services, including mobile money," which has taken "deep root" in sub-Saharan Africa and Asia, the survey said.
Ukraine, Russia, Venezuela and China led the world in cryptocurrency adoption in 2020, according to research from Chainalysis. About a third of small and medium-size U.S. businesses accept cryptocurrency as payment, according to a 2020 HSB survey.
In a letter included in the prospectus, chief executive Brian Armstrong said Coinbase could help foster greater economic freedom by creating a more accessible financial system that complements, rather than replaces, the traditional economy, "much like email was to paper mail."
Armstrong co-founded Coinbase with Fred Ehrsam in 2012 after the two first met on Reddit. Now Coinbase's public debut could land Armstrong among the world's 100 richest people, given his 20% stake in the company. He was No. 404 on the Forbes list, with a net worth of about $6.5 billion, ahead of Coinbase's debut.
"People are using cryptocurrency to earn, spend, save, stake, borrow, lend, vote ... companies are being funded, getting early customers, and will eventually go public, all on blockchain," Armstrong wrote in the letter. "The cryptoeconomy is just getting started."
Coinbase acknowledged in the prospectus that there are risks ahead, "many of which are unpredictable and in certain instances are outside of our control." They include the unknowns of the regulatory environment as well as the company's dependence on cryptocurrency; its ability to "attract, maintain and grow" its customer base; and potential competition.
Crypto emerged stronger after the devastating blows to trading in the early days of the pandemic pushed many investors to seek assets outside the traditional financial system. It's also been lifted by the hysteria, or euphoria, that has characterized trading in 2021, starting with GameStop's dizzying run after online investors vowed to take the ailing retailer "to the moon."
Bitcoin has claimed the headlines, but other digital currencies have soared, too: Ethereum, the second-largest cryptocurrency by market capitalization, is up 221% year-to-date, according to Coindesk, a news site that covers digital currencies. Dogecoin, a meme-based currency that was created as a joke, is up more than 2,700%, to 13 cents a share. Tesla CEO Elon Musk has used his Twitter account to become Dogecoin's biggest cheerleader.
"Leading up today, everything exposed to crypto was rallying," Ed Moya, a financial analyst with the currency-exchange company OANDA, wrote in commentary Wednesday. "Bitcoin has survived years of skepticism and today's Coinbase debut is an exclamation point that cryptocurrencies are here to stay."