Blockchain

Coinbase IPO: $100 Billion listing, will the momentum continue for the crypto giant?

by Sandeep Kumar

Coinbase is a US-based cryptocurrency secure exchange that makes it easy to buy, sell, and store cryptocurrency like Bitcoin, Ethereum, etc. It offers products for both institutional clients and retail clients.The platform provides trading and storage services for 58 cryptocurrencies. Coinbase Prime is a platform dedicated to institutional clients. It also offers a debit Visa which enables clients to spend cryptocurrencies anywhere Visa is accepted.

Coinbase is going for a direct listing on Nasdaq under the ticker ‘COIN’. A direct listing is an alternative to an IPO, and it provides investors and employees the liquidity to their ownership stakes on the listing. This may not be beneficial for the company as no new capital is raised or shares are being issued. However,Coinbase will save millions of dollars in costs usually incurred in IPO.

 Snapshot

  • Founded: 2012
  • Notable Investors: Andreessen Horowitz,Paradigm,Ribbit Capital,Tiger Global, and Union Square Venture
  • HQ: San Francisco CA, United States
  • Total Funding: $847 Mn
  • CEO/ Management experience: Brian Armstrong is the co-founder and the Chief Executive Officer. Brian previously founded UniversityTutor.com. Fred is also co-founder and serves as managing partner at Paradigm (Crypto Fund).

Business Model

Coinbase makes money by charging fees for its brokerage and exchange services. In addition to the brokerage fees, Coinbase also charges variable spreads on purchases and trades. There is also a “Coinbase Fee” in addition to the spread and the cost of depositing money mentioned below in the chart. This fee is dependent on the value of the purchase, payment type (debit/credit), and region you are purchasing from. Customers can upgrade to Coinbase Pro for free after they have sufficient knowledge and experience.For advanced clients, Pro services offer research charts and more complex trading options.Company Highlights

Payment Method

Coinbase Fee

Bank Account

1.49%

Coinbase USD Wallet

1.49%

Debit/Credit Card

3.99%

ACH Transfer

Free

Wire Transfer

$10 ($25 Outgoing)

Crypto Conversion

2.00%

 Fee Structure at Coinbase

Competitive Advantage

Coinbase’s strategy has been to secure virgin markets by focusing on rapid customer volume growth, being the first to implement no fee forthe first $1 Mn of cashouts. This has been a great strategy leading to rapid customer growth.It also developed a pricing model that takes advantage of bitcoin price volatility by monetizing cashouts, which protect bitcoin users against volatility.

Over the years hacking has been one of the major risksleading to bankruptcyto many exchanges. Coinbase boasts an industry-leading security system to protect crypto assets and user data to avoid such ill fate. There has been no reported case of hacking for the company to date.

Market Sentiments

Coinbase is poised to list at a multiple of over 50x revenues.The market is bullish on Coinbase and the future of crypto assets. Crypto Assets have traditionally been highly volatile and have had multiple boom and busts in just one decade. Post the pandemic, the acceptance of crypto-asset has led to prices and trading volume rise exponentially with more acceptance by institutional investors, Coinbase on its part has also planned its listing when the market sentiment is at an all-time high with bitcoin touching a record ATH$60,000 and investors being super bullish on cryptocurrencies. The market is expecting the listing of Coinbase at a very high valuation of around $70Bn – $100 Bn.

Key Risks

  • In the past, there have been many security breaches and loss of crypto assets held by users ex: Mt. Gox. Such a catastrophe could adversely impact Coinbase’s brand and financial condition.
  • Cryptocurrency is highly regulatory and evolving and with many counties banning cryptocurrencies, any adverse regulation can be detrimental to the running of Coinbase.
  • The crypto market is highly innovative, the competition will further intensify in the future as existing and new competitors introduce new products or enhance existing products leading to lower revenues for Coinbase. Exchanges such as Binance, Kraken, Bybit, Bitmex, and Bitflyer have much larger trading volumes than Coinbase and differentiated products such as derivatives and crypto financing.

Financial Highlights

  • Total Revenue (2012-2020): $3.4 Bn
  • Revenue break-up: 96% – Transaction volume-based fee, 4% – Subscription products and services
  • Subscription and Services growing 126% YOY and more stable than the transaction-based fee.

Other Information

Coinbase has two classes of common stock, Class A common stock and Class B common stock. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to twenty votes and is convertible at any time into one share of Class A common stock. In the Listing, only the Class A of 114.9 Mn common stock is available.

  • Supports 90 crypto assets
  • Monthly Active Users: 2.8 Mn
  • Lifetime Trading Volume: $456 Bn
  • Total Assets on Platform: $90 Bn
  • Retail Users: 43 Mn, Institutional Investors – 7000

Market Opportunity

The Growth of Crypto Assets has grown at a CAGR of 195% over the last decade,the size of the market has hit $2 Tn in April 2021 and is poised to continue growing at an accelerated rate with increasing institutional and retail participation. Coinbase today has around 12% of the total crypto assets in its users’ wallets and will look to increase its market share.

Market Competitors

The Top 10 Crypto Exchanges have only ~25% Market Share, Overtime, Coinbase, and other big crypto exchanges will be leading market share gains at the expense of smaller players.

Valuation

The Valuation of Coinbase is in line with other fast-growing exchanges such as Robinhood at 56x revenue multiples. Being the first crypto exchange to be listed, there are no direct competitors to compare Coinbase with.Hence, we are using Robinhood which is a private startup and fast-growing with innovative products and services and has recently started providing a crypto exchange on its platform.

 

Being listed directly, there is a possibility of scarcity premium due to limited supply of Coinbase shares leading to higher valuations.

Valuation ($Bn)

Net Revenue ($Bn)

EV/Revenue

Robinhood 2020

40.0

0.7

58.8x

Robinhood 2021

80.0

1.4

57.1x

Coinbase 2020

68.0

1.2

56.7x

Coinbase 2021

100.0

1.2

77.0x

In the S-1 filing, Coinbase reported that the average share trading price was $343.58 in the private market in the Q1 of 2021 which is valued at $68 Bn. However, in the secondaries, the shares of Coinbase were trading at a valuation as high as $100 Bn, this would bring the multiple to around 77x multiples. Assuming an estimated 266.2 Mn outstanding shares, the shares are expected to trade in the range of $360 – $370. For now, 114.9 Mn shares have been registered to trade on the exchange.

Investing in Coinbase! Should you be cautious?

With investor sentiments at an all-time high, Investors looking for a quick buck can buy the shares during the direct listing and continue holding Coinbase as long as the crypto momentum continues. Long-term Investors however should understand that Coinbase fortunes are directly linked to the value of crypto assets. Expect the stock to be volatile and with some periods of under performance when crypto assets are in the bust phase. We recommend the investors to be optimistic about the long-term prospects of Coinbase but understand that there would be periods of under performance from time to time.

NFT: An Opportunistic Future or a Bubble?

by Sandeep Kumar

An NFT is an on-chain token of an off-chain asset. At the most bare-bones, it is a social contract between the asset creator and the surrounding community.

So, what makes it different from a crypto currency and what is this fuss about non fungibility. An NFT is a digital token that’s like a cryptocurrency but can’t be exchanged for another NFT. This is what makes it non fungible. A bitcoin for a bitcoin, but not one NFT for another. Each NFT is different and unique.

This token is added to a blockchain that supports this special ‘NFT type’ token (such as Ethereum) recording the details of ownership of some commodity, somewhat like how a house deed records the ownership of a house.

The only catch is the commodity, the off-chain asset, must be ownable and somewhat nonfungible. So, you can’t have an NFT on currencies or gold (non-fungibility), nor on Mars or Niagara Falls or the Mona Lisa (unless you own the Mona Lisa of course, then you can do whatever you want, also its highly likely won’t be reading this anyway).

Examples of NFTs Trades: 

  • Digital Art: The $590,000 selling of the famous Nyan Cat Gif, for example, could have only happened because of the meme’s enormous success over the years. 
  • Sports Collectibles: Similarly, the NBA’s highest-selling NFT was a highlight reel of LeBron James, which sold for $200,000. Less well-known players, on the other hand, had reels that sold for as little as $9.
  • Tweets: In March, Jack Dorsey’s original tweet sold for $2.5 Million, paving the way for more similar deals.

Why all this chatter on NFT then?

Because NFT allows storing more data per block. Bitcoin blocks allow only 1MB of data for example, just enough to record a bunch of transactions and some other details. 

This single feature elevates the NFT from more than just a ledger that records transactions (essentially what a cryptocurrency is) to record/store the ownership of pretty much anything such as jpeg files, music files, videos, internet domains, real estate, vintage cars, in-game purchases, art pieces, ad spaces, unlisted shares, horses, just anything.

So just to make things clear, if you are an artist, this is an easy way to monetize your work securely. NFTs also allow a share to the artist each time the NFT changes hands.

As a buyer, which you most likely are, you can buy NFTs of an autograph or highlight reels of an upcoming sports star that you think may strike it big. If in case that happens, it is likely the value of the NFT would have climbed manifolds.

Role of the community in guaranteeing NFTs

Unlike the fiat currencies that are legally backed by central banks, gold, governments and who knows what, a particular NFT only falls back on its scarcity to back it up (the other two tenets of an NFT are its utility and authenticity, both of which are not as effective as an NFTs scarcity is). The ploy of scarcity is a delicate one. The artist or NFT holder may not be able to enforce his ownership, may not get any special rights to own it, may very simply be fooled into buying that NFT or the creator may break its promise. It is the community however that enforces scarcity and hence values it. The creator of the NFT has no say in it.

The value of the NFT comes not from the NFT or the art or the off chain assets that it brings on the chain, it is the NFT and on chain assets’ community and its interactions that hold and/or derive value. It is not the NFT, but the community that is holding value. Most NFTs are worthless, but a few NFTs are focal points of creators and admirers both. Call it a digital bandstand or an art gallery if you wish. 

NFT “An Opportunistic Future”

  • NFT can be a new revenue stream for gaming, sports, art and technology.
  • Like Decentraland, NFTs can transform our attitudes toward ownership and make it possible to own a real-world asset that’s thousands of miles away.
  • Many crypto unknowns could introduce cryptocurrencies for the very first time through NFTs.

Risk associated with NFT

  • It may end up like the initial ICO (initial coin offering) craze as people’s attention shifted to other technology and the space cooled down.
  • What may seem like a hot commodity today may not be as so in the future as seen in the case of Jack Dorsey’s tweet.  
  • Complaints of several pieces of art being stolen and purchased as NFTs leaving the original art creators with no proof of their work.
  • NFT owners must also trust that the maker will not produce another batch of tokens with nearly identical artwork, devaluing the NFT they paid for.

Why the craze of NFT holds despite the associated risk? 

NFTs can be called collectibles. People buy paintings or any other kind of physical art for the same purpose. Utility, authenticity, and scarcity are typically the driving factors behind their demand. 

The obvious one is utility. People are willing to pay for an NFT ticket because it helps them to attend a meeting. Alternatively, they are more likely to purchase art if they can view it in a virtual environment. They’re also willing to spend money on an object that gives them unique abilities in a game. The definition of authenticity explains how an NFT works. What was the source of it? Who has owned it previously? Finally, Leonardo Da Vinci’s famous painting “The Mona Lisa” better describes scarcity. There may exist millions of copies, yet there’s only one original Mona Lisa.

The big player of the NFT market

OpenSea is the first and largest marketplace for user-owned digital goods, which include collectibles, gaming items, domain names, digital art, and other assets backed by a blockchain-based in New York. The number of unique participants after the bubble of 2018 has grown steadily from 8,500 accounts in February of 2018 to over 20,000 accounts in December of 2019. The market is driven by a core group of power users. On OpenSea, the median seller has sold $71.9 worth of stuff, whereas the average seller has sold $1,178 worth of stuff, indicating a large number of power sellers.

Market sentiments and perception

The market for non-fungible tokens is quite small (yet). It is also harder to measure than cryptocurrencies due to the lack of spot prices. Focussing only on secondary trading volume (peer-to-peer sales of NFT, not the creation of NFTs) as an indicator of market size the current secondary market is expected to be roughly $2 – $3 Million USD in volume per month on average.

The total trading volume of non-fungible token (NFT) artwork hit an all-time high of $8.2 Million in December 2020 compared to $2.6 Million in November 2020.

It might sound like a gold rush right now, but the main question is how long will value be produced in all of these new forms if the supply is unlimited? And what would be the most prudent position to take?  A good way to get a piece of the action, yet to stay unharmed is to service the bubble, not to take part in it. Case in point: do now what Levi’s or Wells Fargo did then. NFTs will tokenize everything. It won’t be long before off chain assets get on the blockchains. All valuable assets will then be stored on a decentralised digital ledger, with the NFT being a token of digital representation of an object or person on the chain.

Wall Street’s dream week, crazy week for the IPO market

by tradmin

“U.S. IPOs are having a busy week as 21 companies are expected to price their offerings raising more than $10 billion combined in the coming weeks.”

23 new IPOs were listed at NYSE and Nasdaq combined, making it one of busiest week in Wall street in last few years. Wall street is for visionaries, people who can look forward and measure up the market moves. It’s not for people Reminiscing the past and wallowing in its sorrow. Corona pandemic was past and the recovering economy, potential successful vaccine and rising sentiments among investors are already showing signs. Wall street has always been front runner and rightly so. The last week has seen crazy amount of IPO activity in the market and many more billion-dollar companies are soon to follow.

Snowflake’s share soared on the first day of trading with its valuation doubled from $33 Bn to over $70bn, making its initial public offering the largest ever for a software firm. Snowflake is a cloud computing company, that went public on NYSE on 16th Sep 2020 and raised $3.36 Bn. The overenthusiasm among the investors pushed the first day trading price to $245 — more than double its IPO price — in New York trading. Multiple VC and early stage investors have been able to mint billions of dollars from the IPO. The share got additional traction after the investment interest from Ventures and Berkshire Hathaway.

JFrog a DevOps software development company also went public on 16th Sep 2020 with IPO priced at $44 raising $509 Mn at the company valuation of just about $4 Bn. By end of the day JFrog’s stock soared 47.3%, closing at 64.79. JFrog was reportedly valued at $1.5 billion last year and IPO provided a huge valuation boost to the company. The soaring valuation of the company shows how much the investors are willing to pay for high growing SaaS company.

Unity Software went public with a blockbuster IPO this Friday, with its price jumping 44% by the end of the day. The company raised proceeds of around $1.3 Bn by selling 25 million shares at $52. Its stock raised as high as $76 in early day trading lifting company’s valuation to around $20 Bn. Unity is world famous gaming development studio that is known for hits such as “PokemonGo”, “Call of Duty:mobile” etc. Unity expected its IPO price to be round $34 – $42, but the enthusiasm about the stock among the public helped company go with IPO at $52. Sequoia Capital and Silver Lake were the biggest investors in Unity before the IPO, with Sequoia owning more than 24 per cent. Unity reported loss of $54 Mn this year, even though its revenue is on the rise, reporting $351 Mn earnings last year, 39% up from previous year. Gaming is the fastest growing segment in media category with 2.5 billion gamers worldwide and $140 Bn in revenue which is also consistently rising exponentially.

Sumo Logic: Sumo logic was the third venture backed software company listed this week, on 17th Sep 2020, on the exchange with the price above its anticipated range. The company raised $326 Mn with shares priced at $22, with the day closing at 26.8 a 22% jump in the closing price. Sumo logic is pioneer in continuous Intelligence with applications across digital transformation, cloud computing and analytics. Sumo like many others going public this week has shown solid revenue growth but also equitably growing losses. But the multiple times oversubscription of the company shares and the rising stock price shows the confidence investors have on the company and its growth potential.

Investors are bullish on the market and wall street is riding on the positive wave. Past few weeks have seen strong IPO activity after a long dull period, with 23 new IPO listed on NYSE and Nasdaq just this week. List of IPO listed during this week:

Billions of dollars have changed hands with number of VCs and early stage investors making big exits. Just a month ago when the companies were worried sick about corona and its potential impact on the investments and their portfolio, last few weeks have seen a complete shift in scenario. Sequoia a leading VC was largest owner of Unity, had 8.4% stake in Snowflake and some ownership in Sumo Logic had around $9 Bn worth in these three companies, earning health profits with exits. Many other investors have seen a profitable run and the IPO fever is not expected to end any time soon.

Whatever be the reason, be it the recovering economy from the pandemic, be it the strengthening investor sentiment or be it the escape from the future political uncertainty from elections IPO market is up and running. U.S. IPOs are having a busy week as 21 companies are expected to price their offerings raising more than $10 billion combined in the coming weeks. 

Keep up to date with the latest research

Coinbase IPO: $100 Billion listing, will the momentum continue for the crypto giant?

by Sandeep Kumar

Coinbase is a US-based cryptocurrency secure exchange that makes it easy to buy, sell, and store cryptocurrency like Bitcoin, Ethereum, etc. It offers products for both institutional clients and retail clients.The platform provides trading and storage services for 58 cryptocurrencies. Coinbase Prime is a platform dedicated to institutional clients. It also offers a debit Visa which enables clients to spend cryptocurrencies anywhere Visa is accepted.

Coinbase is going for a direct listing on Nasdaq under the ticker ‘COIN’. A direct listing is an alternative to an IPO, and it provides investors and employees the liquidity to their ownership stakes on the listing. This may not be beneficial for the company as no new capital is raised or shares are being issued. However,Coinbase will save millions of dollars in costs usually incurred in IPO.

 Snapshot

  • Founded: 2012
  • Notable Investors: Andreessen Horowitz,Paradigm,Ribbit Capital,Tiger Global, and Union Square Venture
  • HQ: San Francisco CA, United States
  • Total Funding: $847 Mn
  • CEO/ Management experience: Brian Armstrong is the co-founder and the Chief Executive Officer. Brian previously founded UniversityTutor.com. Fred is also co-founder and serves as managing partner at Paradigm (Crypto Fund).

Business Model

Coinbase makes money by charging fees for its brokerage and exchange services. In addition to the brokerage fees, Coinbase also charges variable spreads on purchases and trades. There is also a “Coinbase Fee” in addition to the spread and the cost of depositing money mentioned below in the chart. This fee is dependent on the value of the purchase, payment type (debit/credit), and region you are purchasing from. Customers can upgrade to Coinbase Pro for free after they have sufficient knowledge and experience.For advanced clients, Pro services offer research charts and more complex trading options.Company Highlights

Payment Method

Coinbase Fee

Bank Account

1.49%

Coinbase USD Wallet

1.49%

Debit/Credit Card

3.99%

ACH Transfer

Free

Wire Transfer

$10 ($25 Outgoing)

Crypto Conversion

2.00%

 Fee Structure at Coinbase

Competitive Advantage

Coinbase’s strategy has been to secure virgin markets by focusing on rapid customer volume growth, being the first to implement no fee forthe first $1 Mn of cashouts. This has been a great strategy leading to rapid customer growth.It also developed a pricing model that takes advantage of bitcoin price volatility by monetizing cashouts, which protect bitcoin users against volatility.

Over the years hacking has been one of the major risksleading to bankruptcyto many exchanges. Coinbase boasts an industry-leading security system to protect crypto assets and user data to avoid such ill fate. There has been no reported case of hacking for the company to date.

Market Sentiments

Coinbase is poised to list at a multiple of over 50x revenues.The market is bullish on Coinbase and the future of crypto assets. Crypto Assets have traditionally been highly volatile and have had multiple boom and busts in just one decade. Post the pandemic, the acceptance of crypto-asset has led to prices and trading volume rise exponentially with more acceptance by institutional investors, Coinbase on its part has also planned its listing when the market sentiment is at an all-time high with bitcoin touching a record ATH$60,000 and investors being super bullish on cryptocurrencies. The market is expecting the listing of Coinbase at a very high valuation of around $70Bn – $100 Bn.

Key Risks

  • In the past, there have been many security breaches and loss of crypto assets held by users ex: Mt. Gox. Such a catastrophe could adversely impact Coinbase’s brand and financial condition.
  • Cryptocurrency is highly regulatory and evolving and with many counties banning cryptocurrencies, any adverse regulation can be detrimental to the running of Coinbase.
  • The crypto market is highly innovative, the competition will further intensify in the future as existing and new competitors introduce new products or enhance existing products leading to lower revenues for Coinbase. Exchanges such as Binance, Kraken, Bybit, Bitmex, and Bitflyer have much larger trading volumes than Coinbase and differentiated products such as derivatives and crypto financing.

Financial Highlights

  • Total Revenue (2012-2020): $3.4 Bn
  • Revenue break-up: 96% – Transaction volume-based fee, 4% – Subscription products and services
  • Subscription and Services growing 126% YOY and more stable than the transaction-based fee.

Other Information

Coinbase has two classes of common stock, Class A common stock and Class B common stock. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to twenty votes and is convertible at any time into one share of Class A common stock. In the Listing, only the Class A of 114.9 Mn common stock is available.

  • Supports 90 crypto assets
  • Monthly Active Users: 2.8 Mn
  • Lifetime Trading Volume: $456 Bn
  • Total Assets on Platform: $90 Bn
  • Retail Users: 43 Mn, Institutional Investors – 7000

Market Opportunity

The Growth of Crypto Assets has grown at a CAGR of 195% over the last decade,the size of the market has hit $2 Tn in April 2021 and is poised to continue growing at an accelerated rate with increasing institutional and retail participation. Coinbase today has around 12% of the total crypto assets in its users’ wallets and will look to increase its market share.

Market Competitors

The Top 10 Crypto Exchanges have only ~25% Market Share, Overtime, Coinbase, and other big crypto exchanges will be leading market share gains at the expense of smaller players.

Valuation

The Valuation of Coinbase is in line with other fast-growing exchanges such as Robinhood at 56x revenue multiples. Being the first crypto exchange to be listed, there are no direct competitors to compare Coinbase with.Hence, we are using Robinhood which is a private startup and fast-growing with innovative products and services and has recently started providing a crypto exchange on its platform.

 

Being listed directly, there is a possibility of scarcity premium due to limited supply of Coinbase shares leading to higher valuations.

Valuation ($Bn)

Net Revenue ($Bn)

EV/Revenue

Robinhood 2020

40.0

0.7

58.8x

Robinhood 2021

80.0

1.4

57.1x

Coinbase 2020

68.0

1.2

56.7x

Coinbase 2021

100.0

1.2

77.0x

In the S-1 filing, Coinbase reported that the average share trading price was $343.58 in the private market in the Q1 of 2021 which is valued at $68 Bn. However, in the secondaries, the shares of Coinbase were trading at a valuation as high as $100 Bn, this would bring the multiple to around 77x multiples. Assuming an estimated 266.2 Mn outstanding shares, the shares are expected to trade in the range of $360 – $370. For now, 114.9 Mn shares have been registered to trade on the exchange.

Investing in Coinbase! Should you be cautious?

With investor sentiments at an all-time high, Investors looking for a quick buck can buy the shares during the direct listing and continue holding Coinbase as long as the crypto momentum continues. Long-term Investors however should understand that Coinbase fortunes are directly linked to the value of crypto assets. Expect the stock to be volatile and with some periods of under performance when crypto assets are in the bust phase. We recommend the investors to be optimistic about the long-term prospects of Coinbase but understand that there would be periods of under performance from time to time.

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