Crypto Boom Has Been Good to Coinbase Ahead of Planned Listing
Employees work at the Coinbase Inc. office in San Francisco, California, U.S.(Photographer: Michael Short/Bloomberg)

Crypto Boom Has Been Good to Coinbase Ahead of Planned Listing

Coinbase Global Inc. is the latest company that’s taking an unconventional route to becoming a public company. A look at the largest cryptocurrency exchange’s latest financial statements shows something else that sets it apart: It’s making money.

About 85% of the 130 companies that went public in the U.S. last year were unprofitable, according to data compiled by Bloomberg that excludes special purchase acquisition companies and real-estate investment trusts. Coinbase, which plans a direct listing rather than a traditional initial public offering, swung from a loss to a profit of $322 million last year on net revenue that more than doubled to $1.14 billion.

The gains highlight an underlying tension between the exchange’s business model and the buy-and-hold ethos of many Bitcoin proponents. Some 96% of Coinbase’s revenue last year came from fees on transactions on its exchange, according to its filing with the Securities & Exchange Commission. So the less that crypto traders hold -- or “hodl,” as it’s know -- the better Coinbase does.

And that appears to have been the case in 2020. Verified users of the exchange rose 34% to 43 million last year, while monthly transacting users jumped 180% to 2.8 million, according to the filing. A majority of its net revenue was derived from trades in Bitcoin and Ethereum.

The company’s shares have changed hands in recent private transactions at levels that would value Coinbase at close to $100 billion, a person familiar with the matter said. That could make it one of the biggest companies to go public since Facebook Inc.

Break-Through Moment

The emergence of Coinbase as a publicly traded company is anticipated to be a break-through moment for the industry, marking a milestone on the road to maturity for crypto as a mainstream asset class. It also should provide some transparency into the more opaque corners of the market.

In its filing, Coinbase detailed an investigation by the Commodity Futures Trading Commission since 2017, and disclosed that it has received subpoenas from the Treasury Department’s Office of Foreign Assets Control and attorneys general of California and Massachusetts.

Coinbase said it plans to disclose material information over Twitter, potentially including Chief Executive Officer Brian Armstrong’s account, as well as via LinkedIn and YouTube.

Crypto Boom Has Been Good to Coinbase Ahead of Planned Listing

The exchange’s plans to go public come as Bitcoin trades at around $50,000 after hitting an all-time high of $57,355 on Feb. 21, meaning its value has increased by more than 400% over the last year.

Cryptocurrencies have been buoyed by monetary and fiscal stimulus aimed at fighting the impact of the pandemic, as well as its embrace as a store of value by corporations such as Tesla Inc., MicroStrategy Inc. and Square Inc. Investors such as Cathie Wood, founder of Ark Investment Management, are also bullish. Wood told a Bloomberg panel on Thursday that Bitcoin has the potential to reach trillions of dollars in market capitalization.

Among potential risk factors that could affect its plans, Coinbase listed the volatile nature of crypto as the main concern. Another risk is competition from so-called decentralized exchanges, which effectively let people trade coins without an intermediary. Such exchanges are part of so-called decentralized finance movement, or DeFi, in which apps let people trade, lend and borrow coins from each other directly. In the same prospectus, Coinbase noted that it has invested in DeFi protocols -- possibly in potential competitors.

One other noteworthy risk factor: “the identification of Satoshi Nakamoto, the pseudonymous person or persons who developed Bitcoin, or the transfer of Satoshi’s Bitcoins.”

In an echo of Robinhood Markets’s mission to democratize access to financial markets, Coinbase’s Armstrong said that the company’s goal is to solve problems in the current financial system and “create more economic freedom.”

“If the world economy ran on a common set of standards, that could not be manipulated by any company or country, the world would be a more fair and free place, and human progress would accelerate,” Armstrong wrote in a letter addressing potential investors.

Nasdaq Debut

The offering could be the first major direct listing to take place on the Nasdaq. All previous ones, including Spotify Technology SA, Slack Technologies Inc., Asana Inc. and Palantir Technologies Inc., were listed on the New York Stock Exchange. Online video game company Roblox Corp. has also announced that it’s planning a direct listing, after earlier delaying its IPO and raising capital privately.

Coinbase won’t raise any proceeds in the transaction, the filing shows. The company didn’t list an address for its headquarters, saying that instead it became a “remote-first” company in May.

Started in 2012, Coinbase has raised more than $500 million from backers that include Y Combinator and Greylock Partners, according to its website. The company was valued at more than $8 billion in 2018 after a $300 million funding round led by Tiger Global Management. Andreessen Horowitz, Tiger Global, Ribbit Capital, Union Square Ventures and co-founder Frederick Ernest Ehrsam III are listed among its biggest shareholders, the filing shows.

Owners of Coinbase’s Class A common stock will be allowed to sell in the listing and will not be subject to lock-up agreements. Class A stock carries one vote per share, while Class B has 20, according to the filing.

Coinbase will be listed under the symbol COIN. Goldman Sachs Group Inc., JPMorgan Chase & Co., Allen & Co. and Citigroup Inc. are advising on the transaction.

©2021 Bloomberg L.P.

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