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Coinbase listing a win for crypto enthusiasts despite persistent detractors

The Coinbase debut is a really important event in the maturation of the crypto industry

Coinbase commanded a fully diluted valuation of about $86 billion following its direct listing Volatility in Coinbase shares spilled over to bitcoin and ethereum Coinbase's revenue for the year ended Dec. 31 more than doubled to $1.3 bn

Coinbase Global (COIN) shares reached as much as $429 on Wednesday April 14th, in the minutes immediately following Coinbase’s opening trade on Nasdaq.

This was far higher than Coinbase’s reference price of $250 set by the stock exchange and higher than when it opened at $381 per share

“They’re really setting the standard for what I think is going to unlock a lot of blue-chip crypto companies to come to the public market,” Michael Sonnenshein, Grayscale Investments CEO, told Yahoo Finance.

“It’s likely to lift valuations across crypto companies,” he added.

Steve Ehrlich, CEO of Voyager Digital, a crypto asset broker, told CNN’s Paul R. La Monica: “This is just the beginning.”

“The Coinbase debut is a really important event in the maturation of the crypto industry. It has built a strong business and the market is believing that.”

Based on Coinbase’s closing price on Wednesday, the company commanded a fully diluted valuation of about $86 billion following its direct listing. 

That gave Coinbase, the largest cryptocurrency exchange in the US, a larger market capitalization than other major legacy exchanges, including the Intercontinental Exchange, CME Group, and the Nasdaq. 

“I think Coinbase is this decade’s Microsoft, Netscape, Google or Facebook,” Garry Tan, founder and managing partner at Initialized Capital and an early-stage Coinbase investor, said in an interview with Bloomberg Television.

Read: Bitcoin bans could have a dramatic effect on crypto’s price

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Trade volatility

Coinbase’s valuation at one point exceeded $112 bn, nearing the market capitalization of Goldman Sachs.

Volatility in Coinbase shares spilled over to bitcoin as well. The largest cryptocurrency by market capitalization fell about 1% Thursday to below $63,000, retreating from its record high of more than $64,800 reached just a day earlier. Ethereum, meanwhile, jumped to a record high, rising more than 3% to top $2,400. Bitcoin, along with Ethereum, made up 56% of Coinbase’s 2020 trading revenue.

But recent volatility aside, many strategists maintained that Coinbase’s public debut marked a watershed moment for cryptocurrency, reflecting the culmination of months of accelerating institutional adoption. 

Institutional investors behind cryptos

Cryptocurrency backers have spent years insisting that bitcoin, ethereum, and other digital coins could revolutionize the world of finance. Finally, they’re getting their moment.

Mastercard and Visa are trying to normalize crypto payments on their networks. 

Companies including Tesla, Square, BNY Mellon, and PayPal have either added significant holdings of bitcoin to their balance sheets or begun facilitating transactions in cryptocurrencies, and legacy banks Morgan Stanley and Goldman Sachs recently announced they would begin offering bitcoin exposure to their wealth management clients.  

Coindbase revenues

Coinbase makes the vast majority of its money via transaction fees from trades on its platform by retail and institutional users paying over 2% in commissions. 

Coinbase’s revenue for the year ended Dec. 31 more than doubled to $1.3 bn and profited $322.3 million for the full year 2020, versus a net loss of $30.4 mn in 2019. 

For the first quarter of fiscal 2021, Coinbase estimated it would post a net income of between $730 mn and $800 mn, compared to net income of just $32.26 mn in the first three months of 2020.

Coinbase making investors rich

The debut has made a lot of people very rich. At Wednesday’s closing price, Coinbase CEO Brian Armstrong’s 39.6 million shares are worth just under $13 billion.

Garry Tan, the managing partner with Initialized Capital, invested in the company when it was founded in 2012. He told CNN Business that his firm’s first investment, about $300,000 at the time. is now worth more than $2 bn. That’s a more than 6,000% return.

The other side of Coinbase

Coinbase’s rapid growth hasn’t been without controversy, ranging from frequent outages during periods of heavy trading.

 Coinbase also settled with the Commodity Futures Trading Commission for $6.5 mn, after the agency said the company reported inaccurate data about transactions and that a former employee engaged in improper trades.

 Then there are the crypto skeptics, as well as the regulators around the world who are stepping up oversight and casting doubt on Bitcoin’s usefulness as a currency.

 European Central Bank executive board member Isabel Schnabel, in an interview this month with Der Spiegel, called Bitcoin “a speculative asset without any recognizable fundamental value.”