Largest US crypto platform: Coinbase goes public

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Bitcoin in focus:

Coinbase is currently doing dazzling business as a trading platform for cryptocurrencies

Photo: Dado Ruvic / REUTERS

Tomorrow, Wednesday, the time has come: Coinbase, the largest US trading platform for cryptocurrencies, will be launched on the US tech exchange Nasdaq.

A direct placement of more than 100 million shares is planned, a cost-effective procedure in which there is no need for support from investment banks or a pricing procedure.

Coinbase will be listed on the Nasdaq under the symbol "COIN", and with considerable weight right from the start: The company is already worth around 91.5 billion dollars, reports the "Wall Street Journal" with reference to documents from the US Securities and Exchange Commission.

Analysts assume that the market value at the IPO can exceed the limit of 100 billion dollars.

The IPO, according to my observers, is a milestone for the emerging market for cryptocurrencies, which is still struggling for its place in the established financial world.

The timing could hardly be better for Coinbase: Given the cryptocurrencies boom that has been going on for months, the trading platform was able to present remarkable business figures for the first quarter recently.

The number of active users rose by 13 million to 56 million within the three months.

Revenues were $ 1.8 billion, compared to $ 191 million in the same period last year.

Coinbase estimates the profit for the months January to March 2021 at 730 to 800 million dollars - even at the lower end that would be more than double the profit of the entire previous year.

The result: Coinbase boss

Brian Armstrong

(37) is currently one of the highest paid CEOs in the world.

The background to the latest business success is the upswing that the prices of Bitcoin and other crypto currencies have been experiencing for months.

Driven by the increasing interest of hedge funds and institutional investors as well as by promises from prominent addresses such as Tesla or PayPal, the price of the most important crypto currency Bitcoin, for example, has increased ninefold to more than 60,000 dollars within twelve months.

So does the Coinbase share give investors an attractive and uncomplicated opportunity to invest in the crypto market and participate in possible further price increases for Bitcoin and Co?

Anyone who accesses the paper should first take a closer look and know some imponderables.

Here are the three most important ones:

Risk 1: possible price drop for Bitcoin and Co.

The strong price fluctuations in the market for cryptocurrencies are now legendary.

The price increase of Bitcoin from around 7,000 dollars twelve months ago to currently more than 60,000 dollars speaks for itself.

At the end of 2017, Bitcoin skyrocketed to almost $ 20,000 - only to lose most of this value again within a few months.

The trading platform Coinbase makes a large part of its sales with fees that customers have to pay for buying and selling cryptocurrencies.

These fees accounted for about 96 percent of sales last year, according to the Wall Street Journal.

Should Bitcoin or other cyber money lose its attractiveness again and trading activities slacken, this would be reflected directly in the company's business figures: not only in terms of sales, but also in terms of profit.

Risk 2: increasing competition between trading venues - competition for Coinbase is growing

Cryptocurrencies have become a popular form of alternative financial investment in recent years, but they are still far from being established with the mass of money investors worldwide.

The market is still opening up new groups of customers.

Likewise, new players are constantly pushing into the business, competing with trading houses such as Coinbase.

Against this background, two developments are already foreseeable.

On the one hand, as the market grows, it becomes more attractive for discount providers who charge low fees and do their business above the masses.

On the other hand, financial groups will also open up the business that already have a well-trained apparatus from other areas of the investment business that they can transfer to the crypto market at low cost.

For Coinbase, both mean: The competition will increase and the fee level on the crypto market will decrease.

The latter in particular could hit Coinbase hard.

According to the "Wall Street Journal", the company is currently by some distance one of the most expensive providers in the US market, with trading fees that are more than double those of the competition.

For the German market, too, where investors can also make their crypto investments via Coinbase, among other things, an analysis by the "Handelsblatt" at the end of last year also showed that the costs of Coinbase are well above those of providers such as Binance, Justtrade or Kraken.

Although significantly more cryptocurrencies can currently be traded on Coinbase for German customers than, for example, with the German provider BSDEX - the number of tradable coins is likely to increase significantly on the German and European crypto exchanges in the near future.

Risk 3: possibly imminent regulation

At the moment, crypto traders such as Coinbase or US competitor Kraken are still largely operating outside of the strict financial regulations that apply to stock exchanges such as the New York Stock Exchange or Deutsche Börse.

As the "Financial Times" recently analyzed, this is not least one of the reasons why Coinbase and Co can achieve such exorbitant sales and profits in the current market environment.

Conversely, this means: Should the regulatory situation of the trading venues change - and there is currently a lot of evidence that this will happen sooner or later if the market continues to grow - then the basis for their business activities will also change fundamentally.

Companies may then have to give up some of their most profitable businesses or operate at significantly higher costs.

Investors should keep an eye on this risk - after all, Coinbase itself indicates this risk in its stock exchange documents in the "Risk Factors" section.

In Germany, investors also already have the option of switching to players such as BSDEX (Boerse Stuttgart Digital Exchange) with their "Bison" app or to Justtrade.

They currently have a much smaller range of coins than Coinbase or Coinbase Pro.

But they are regulated in Germany and are closer to the customer anyway.

Pay attention to the evaluation

It is clear that none of these are knock-out criteria for an investment in Coinbase.

The company can react to all of these developments and can adapt its business model, cost structures and prices.

As one of the early players in a rapidly growing market like that of cryptocurrencies, Coinbase has very good prospects of continuing to be successful.

However: A key figure that is often used to compare companies and their shares on the stock exchange is the price-earnings ratio (P / E).

As a rule of thumb, the higher the P / E ratio, the more expensive a share is in relation to the profit that the company generates.

The "Wall Street Journal" calculates that Coinbase is currently trading at around 90 times its annual profit.

At Intercontinental Exchange, on the other hand, the operating company of the New York Stock Exchange, the comparative value is currently around 31. At Nasdaq it is 27. Investors should also have these numbers in the back of their minds before they access Coinbase shares.

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