We think Coinbase is an exciting IPO, which has been delayed by a month with an anticipated
“direct listing” by April though the timeline could take a while longer from other news reports. It was also recently reported that the CFTC-fined Coinbase $6.5M. Ironically, it’s anticipated that this could delay the IPO by a couple additional weeks.
Coinbase overvalued or just difficult to value?
It’s really difficult to determine whether or not Coinbase is overvalued, which has been speculation from various third-parties. This is mainly because Coinbase earns its exchange commissions in terms of the underlying crypto assets trading on the exchange, and the volume of transactions on the exchange. Without knowing the intrinsic value of Coinbase holdings, and the volume metrics to exact accuracy, it will take a while to determine what the underlying equity is worth in relation to sizeable holdings, and considerable AUM denominated in BTC terms. In other words, just wait until the S-1 filing is made available.
What gets us excited about Coinbase however is the availability of liquidity in the equity markets, and the value of comparative tokens like (BNB) Binnance Coin, which currently has a $46B market cap, and technically speaking, BNB coin isn’t exactly an equity instrument, but rather a utility token that covers commission cost on the BNB exchange.
So, the reported figures of Coinbase starting its IPO at an $80B-$100B valuation range doesn’t sound all that inconceivable, considering the underlying equity entitles investors to Coinbase profits, dividends, buybacks, and various other forms of capital return that would otherwise not be available for a utility token holder.
What are some of the risks?
We think there’s a significant opportunity here, but it’s entirely dependent on two factors going well, right out the gate, and that would be equity markets, and cryptocurrency markets.
Equity markets remain nervous currently, as the data pertaining to COVID-19 cases hasn’t completely turned the corner, stimulus funding came a little late with less funding than anticipated in a Democratically-led Congress/Presidency, and interest rate spreads continue to expand. Take that all together, and equity investors are positioning in equities based on a number of factors that will make this a more lop-sided recovery with increased commodity prices, i.e. crude oil putting further pressure on discretionary spending, though providing a boost for industrial stocks, which is why there’s been a divergence in NASDAQ versus Dow Component stocks, as deep value/commodity-dependent stocks have managed to buck the trend, whereas more speculative NASDAQ stocks, i.e. tech, biotech, pot stocks have broadly retreated.
Cryptocurrency hype still translates favorably for Coinbase
In other words, we think Coinbase could be subjected to some of the broad tech retreat, though it does get bolstered by a very strong environment in cryptocurrencies where the global market cap of crypto assets has reached $1.86T. Also take into consideration Coinbase is still the largest spot U.S. crypto exchange, and it’s the second largest exchange in terms of daily volume.
So, assuming Bitcoin continued to perform well, there should be a lot of hype right out the gate for the Coinbase IPO. Also, Coinbase has room for growth. Coinbase could increase the number of coins that trade on the exchange, could provide credit-banking-merchant services, and could have a number of other paths to sustaining high rates of revenue/dil. EPS growth, assuming the long-term BTC uptrend remains on track.
Disclosure: Cho Research was not compensated to publish “Coinbase IPO Will the Stars Align in April?” Though Cho Research does use the research dollars it
generates from other clients of our research service to fund market research
reports such as this. This document is not produced in conjunction with a
security offering and is not an offering to purchase securities. This report
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within this report may constitute forward-looking statements, these statements
involve many risk factors and general uncertainties around the business,
industry, and macroeconomic environment. Investors need to be aware of the high
degree of risk in micro capitalization equities, cryptocurrencies, crypto assets.
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