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For cryptocurrency enthusiasts, this week’s U.S. Coinbase stock market is the modern equivalent of the Netscape debut that propelled the Internet into mainstream finance a quarter of a century ago.
The initial public offering of the web browser, which was then a Silicon Valley company, came long before Microsoft incorporated Internet Explorer into its best-selling PC software. It was time to enter the ground floor of a life-changing technology.
Still, the 1995 launch left some fund managers scratching their heads: how do you rate this company? Is it really a game changer?
A similar conversation is taking place on Wall Street today after more than 120 million shares of Coinbase (worth $ 43 billion) changed hands on Wednesday and Thursday, boosting its valuation to $ 65 billion. , just below the Intercontinental Exchange, which owns the New York Stock Exchange. .
The company’s public launch, which owns digital assets for 56 million retail customers and operates the largest digital currency exchange in the United States, was the latest in a long line of examples of as bitcoin and other digital assets move from the fringe to the main stage.
Netscape’s IPO “was the moment when it was printed in the public psyche:” What is the Internet? What is the web? Said Tom Jessop, the president of Fidelity digital assets. “This transaction is probably so significant.”
Several asset managers have submitted plans to launch bitcoin-traded funds in the Securities and Exchange Commission. A handful of companies, including Tesla and the payment group Square, have bought bitcoins to keep them on their balance sheets. And this week, hedge fund Brevan Howard invested up to 1.5% of its main fund in cryptocurrencies, according to one person.
Goldman Sachs, which advised Coinbase on its float, restarts a cryptocurrency trading desk as institutional money managers warm up in the market. This week, Goldman’s chief executive told investors he wanted to “look for ways to expand our capabilities” in cryptography.
Skeptics point out that cryptocurrencies have not yet achieved widespread adoption in payments and other core areas of the financial system. Federal Reserve Chairman Jay Powell on Wednesday called cryptocurrencies “vehicles for speculation,” reflecting a view that is still prevalent among policymakers around the world.
Cryptocurrencies have also angered prosecutors and regulators, who are concerned about money laundering and the risks to the investing public, given their high volatility, as well as the alarm over environmental damage caused by bitcoin mining. In 2018, the head of the Bank for International Settlements, Agustín Carstens, said that “cryptocurrencies are, in a nutshell, a bubble, a Ponzi scheme and an environmental disaster.”
While Coinbase’s debut marks a critical juncture for the crypto markets, the company had to suspend some of its most ambitious plans. The sale of tokens, a type of digital asset that would have formed a class of Coinbase shares, was finally canceled after the company struggled to find a sufficient group of licensed intermediaries to trade them, according to the people involved in the process.
Coinbase’s share price, which raised at least $ 3.4 million for shareholders who sold on Wednesday in the first transaction, does not guarantee a solid track record for the exchange or for cryptocurrencies. The rise in bitcoin prices has helped generate investor interest in digital currency and an investment could be detrimental to their prospects. The increase in retail trade that captivated Wall Street and the investing public in January and February has already begun to fade.
Bitcoin and other assets seemed about to be adopted sooner; in a high-profile setback in 2019, derivatives exchange Cboe he pulled the plug on bitcoin futures due to lack of investor interest.
However, there are more cryptographic listings in process. Bakkt, the cryptocurrency support provider backed by the Intercontinental Exchange, is making public a merger with a shell company. Coinbase rival Kraken chief executive has done the same exposed his ambitions to become public. The company’s shares have recently changed hands at prices that would give it an implicit valuation of $ 10 billion to $ 15 billion, according to people reported on the operations.
Coinbase has already proven to be profitable, recording net income of at least $ 730 million, up from about $ 1.8 billion in revenue during the first quarter. This suggests that, compared to the commissions that brokers and stock exchanges set by processing much larger transaction volumes can earn, this is a lucrative business.
Coinbase’s regulatory files, including quarterly and annual reports and investor presentations, will now offer a look at the business in a way the public hadn’t seen before.
“It’s now a phenomenon that traditional institutions can’t ignore,” Jessop said, noting the company’s large user base. “Obviously it’s an attractive set of revenue.”
For the broader cryptocurrency ecosystem, Coinbase’s listing “legitimizes the industry in a new way,” said Stephen Wink, a partner at law firm Latham & Watkins, which advised banks on the transaction. “People understand that the SEC’s process to become a public company is rigorous and that gives some comfort that what they’re doing is on solid ground. That gives real credibility in doing all this.”
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