New York, April 13 2021: Despite concerns surrounding the sustainability of its market, the arrival of Coinbase (listed as COIN), the first company devoted to cryptocurrency, to the US stock exchange, is the most anticipated event of the year.
Already assuming the reputation of a heavy weight, the capitalization of Coinbase is expected to range from $70 to $100 billion, the largest IPO for a US company since Facebook in 2012. Giving shareholders the opportunity to sell stocks on the market, Coinbase chose a direct listing method. This approach is similar to what Spotify, Slack, Palantir and Roblox had used for their Wall Street debuts. Nearly 115 million Coinbase shares will be put on the market.
Coinbase is platform that allows its 56million users to buy and sell about 50 cryptocurrencies, it was set up in 2012 in San Francisco by Brian Armstrong and Fred Ehrsam. The meteoric rise of the crypto asset from $6500 to $61000 in the past year has benefited Coinbase just as much as other virtual currencies such as ether, Litecoin or Stellar Lumens.
A market analyst at CMC markets UK, Michael Hewson commented on the potential of the crypto asset market, saying, “With bitcoin already having more than doubled in the last six months and cryptocurrencies becoming more popular with more mainstream investors, it can certainly be argued that crypto has become more mainstream in the last 12 months.” This excitement has skyrocketed Coinbase’s profit, to the range of $730 to $800 million.
Despite the positive news for Coinbase, market observers remain cautious about the tendency of crypto assets to fluctuate in value wildly, recalling the setbacks Bitcoin experienced before its spectacular rise in 2018. Some are also drawing attention to the distrust of lawmakers in several countries, who are concerned about cryptocurrencies being used for illicit purposes.
The other important issue is, how popular Coinbase can be among retail investors and whether any valuation is sustainable, particularly given how many governments are mostly skeptical about cryptocurrencies.
Legislation therefore still remains a headwind that the crypto asset market will have to weather. Coinbase was recently charged by the US Commodity Futures Trading Commission, which accused it of “reporting false, misleading, or inaccurate” information about cryptocurrencies and manipulating the market between 2015 and 2018.
Coinbase consequently paid a fine of $6.5 million fine, pushed back its listing on Wall Street, but refuses to admit any wrongdoing. Another factor that could put Coinbase at a disadvantage is its higher than average commissions compared to others competitors such as Binance, which incidentally itself is under investigation by CTFC for potentially violating US commodities laws.
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