IPO of Coinbase: "Traditional banks will have to evolve to adapt to these new players" (Interview)

Guillaume ChanutCryptomoneyApril 24, 2021 at 6:00 p.m.1837viewimage / Shutterstock.com

Last Wednesday, the Coinbase cryptocurrency exchange went public through a direct IPO. An event closely followed by crypto-enthusiasts, but also and above all by the high American financial circles who are increasingly interested in crypto-assets.

Coinbase is the symbol of the democratization of cryptocurrencies in the United States in recent years. Created in 2012 by two crypto-enthusiasts with the aim of making Bitcoin and its ecosystem more accessible, Coinbase is today a giant of which offers its services to more than 50 million users worldwide. An American success story for these former Google and Goldman Sachs pioneers of a movement to democratize services hitherto reserved for insiders.

Taking advantage of the current craze for cryptoassets, the direct listing was a great success and Coinbase stock closed for its first day at $328, for a valuation of more than $100 billion. The title was even worth up to $429 that same day on the traditional stock exchange, and it had risen to around $600 on the FTX cryptocurrency trading platform, which offers a speculation service on replicated securities. Record volumes.

Coinbase IPO: interview with Vincent Gann, senior analyst at TradingView France

Clubic - The largest IPO in history to date is a cryptocurrency exchange platform. Is this a strong signal for this ecosystem? Is this recognition by the financial sector?

This has been the trend for about 3 years now. Since the crypto-asset bubble of early 2018, we have seen the beginnings of adoption of the sector by American high finance. The starting point is in particular the opening of Bitcoin futures by the Chicago Mercantile Exchange, a highly respected derivatives market place on December 18, 2017. Today, adoption has never been stronger and the sector is experiencing its recent growth thanks to this enthusiasm on the part of Wall Street. Today, adoption at all levels is taking place little by little:

Recently, Rick Rieder, one of the managers of the BlackRock investment fund, explained that "Bitcoin was here to stay and competed with gold". Despite their price volatility, cryptos are no longer doomed, they are here to stay in a world where liquidity is plentiful and the future of fiat currencies uncertain.

Today more than ever, “institutionals” are interested and investing in cryptocurrencies. Where are we concretely?

Institutionals are looking for exposure to cryptocurrencies, but not all funds can yet offer this type of product to their clients. We therefore understand the enthusiasm around the introduction of Coinbase, which is ultimately a way to expose oneself more easily, or even for some represented an "unofficial crypto ETF".

Obviously, crypto-assets have not yet become the main activity of institutional investors and remain exotic products, up to one or two percent of their positions. But three years ago, it was rather a total rejection. It is therefore a great step forward for this still young ecosystem, which still has growth potential.

Coinbase has gone public, what's next for the 'crypto bank'?

With Coinbase now public, its stock (the $COIN) is now part of many fund managers' portfolios. It's a very big exposure of the platform, but it's also a big pressure on the shoulders of the CEO, Brian Armstrong.

Today, the platform's revenues ($1.14 billion in 2020) come mainly from exchange fees applied to users (more than 85% in 2020). The company will be able to take advantage of its introduction to launch new major projects that will allow it to diversify its various revenues and no longer depend solely on its trading volumes, an activity closely linked to fluctuations in the cryptocurrency market. We can think of the development of the USDC, their stablecoin (cryptoasset whose value is indexed to a fiduciary currency, here the dollar), but also of the tokenization of goods and assets.

More than ever, Coinbase will connect with the evolution of cryptocurrencies and the ecosystem and continue its mission to democratize the new services that the ecosystem offers. We could see the arrival for users of the platform of lending and borrowing services derived from decentralized finance, or the development of their staking service.

As an individual, is it relevant to add $COIN to your equity portfolio?

It is clear that the cryptocurrency market, driven by the evolution of Bitcoin, has a positive influence on the value of Coinbase, and therefore on its action. If in the medium and long term you see the cryptocurrency ecosystem evolving in the right direction, yes it may be relevant.

However, this should not be a short-term operation. The cryptocurrency market has grown significantly (from $300 billion in 2020 to over $2 trillion in recent weeks) and is not immune to future corrections. We have also seen in recent days a breathing phase of the market. It is therefore a purchase for a time horizon between 5 and 10 years and there will certainly be moves to play in the soft underbelly of bitcoin price fluctuations.

Coinbase, the bank like no other.

Like many crypto platforms, Coinbase offers many "associated services" that are reminiscent of traditional banking services . Thus, the company offers to secure its customers' funds in a “digital safe” (Vault) and issues its own currency (USDC). Today, this currency is among the three main stablecoins in the crypto market, along with its competitors USDT (Tether, Poloniex) and BUSD (Binance).

For individuals, Coinbase is also the Fintech spirit: a responsive and very easy-to-use mobile application, a few clicks to register and the storage of crypto-assets which is done directly on the account. If the main use of users of this type of platform remains to this day speculation, it is easy to imagine possible developments to meet other uses.

The beginning of a new era for cryptos?

This IPO is probably not an official and precise starting point, but it marks a change of era for cryptoassets. Often set aside due to the youth of their technology, strong speculation or their sometimes "anti-system" origins, the sector is now more mature and weighs more than 2,000 billion dollars (still largely dominated by Bitcoin) .

At over $100 billion in value, Coinbase is now worth more than some traditional banks like BNP Paribas. For Vincent Gann, the time is no longer for opposition or sidelining but for the cohabitation of two worlds, and it will be up to traditional banks to evolve to adapt to these new players.

Especially since Coinbase is not the only cryptocurrency exchange in the United States, and other CEOs may follow its example to go public in turn. Just as Netscape was dethroned in its time by the competition after a launch that helped revolutionize the web ecosystem, Coinbase is not immune to vigorous competition seeking to carve out a share of this lucrative market.