Coinbase Global, Inc. (NASDAQ:COIN) starts trading publicly today after its direct listing, and meanwhile, the bitcoin price hit a new record high. Some are linking the bitcoin rally to Coinbase’s direct listing, but other experts emphasize that they are two different things.
Will Coinbase reach its private market valuation?
Coinbase's most recent private market valuation is $100 billion, so market watchers want to see whether it can reach that level on the public market. According to CNBC, if it does, it would become one of the 85 most valuable companies in the U.S.
GrizzlyRock Value Partners was up 16.6% for the first quarter, compared to the S&P 500's 5.77% gain and the Russell 2000's 12.44% return. GrizzlyRock's long return was 22.3% gross, while its short return was -2.9% gross. Compared to the Russell 2000, the fund's long portfolio delivered alpha of 10.8%, while its short portfolio delivered alpha Read More
Unfortunately, experts say it's difficult to value the cryptocurrency exchange. Natalie Hwang of Aperia Capital told CNBC that although valuing any start-up can be difficult, the issue of valuation is much more complex with Coinbase.
The Nasdaq set its reference price for Coinbase at $250 per share, which would only value it at $65.3 billion. The cryptocurrency exchange estimates its first-quarter revenue at $1.8 billion due to the skyrocketing values of bitcoin and other digital currencies.
The critical issue for the company is the volatility in the crypto market. It's impossible to predict prices, and Coinbase included 27 bullet points on the issue in its prospectus. Among the possible risks are changes in investor confidence, bad publicity and social media posts, regulatory concerns and service interruptions.
According to CNBC, Coinbase enthusiasts don't pay much attention to fundamental analysis of the company's earnings quality, customer retention or efficiency because the underlying assets that make up its financial story are so unpredictable. Instead, they're basing their bets on a future in which the blockchain dominates the financial markets, replacing intermediaries.
One thing Coinbase needs to do
Collin Plume of Noble Gold noted that the record-breaking valuation estimates reflect the market's expectations and crypto's mainstream acceptance. However, he added that Coinbase is a company rather than a cryptocurrency, and companies that seek investment must pay attention to "culture, process and business models — not just subjective expectations."
"With this mind, there is one fundamental thing Coinbase is NOT doing: diversifying. In the same way that Google and Facebook are heavily reliant on advertising, Coinbase's revenue is heavily reliant on crypto transactions," Plume pointed out in an email. "But while Google and Facebook have evolved, there is little evidence so far that Coinbase will diversify.
Is the exchange's direct listing driving the bitcoin price?
Some are linking the latest bitcoin rally to Coinbase's direct listing, but Plume believes that no matter what happens with the cryptocurrency exchange, the rally is independent. He believes bitcoin is headed where it is headed.
"The bitcoin rally is a product of long-term awareness and education," Plume said. "Coinbase going public puts a spotlight on the potential of crypto, but it's a gradual build-up as evidenced by Google Search. Searches about bitcoin are high but not all-time high, which implies it's not retail that's driving this rally. You can also look at the traffic to exchanges – they're high but not all-time high. Many people have been interested in crypto for a while, and Coinbase going public is the final kick many needed."