Coinbase
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The Coinbase IPO: A Historic Moment for Crypto Currencies

On Wednesday, April 14th Coinbase made a splashy trading debut on NASDAQ. As the first public listing of a major cryptocurrency company, it did not disappoint. Coinbase seized an $85 billion valuation in its market debut. It was a remarkable moment for an industry that just a decade ago was still in its nascent stages.

The shares, trading under the ticker symbol COIN, surged past $400 per share during the day before closing the first day at a price above $300 per share. The NASDAQ stock exchange had set a $250 per share reference price. The company releases a reference price the day before the issue date. The reference price merely serves as guidance for informing the public, but supply and demand dictates the actual opening price. Due to high demand, there were no traded at that low of a price.

Coinbase IPO
Coinbase IPO
Photo by Marco Verch at ccnull.de

The highly anticipated public listing has been a watershed moment for many who have watched crypto since its early days. Gil Luria, an analyst at investment firm D.A. Davidson stated, “To a lot of people, crypto still seems like a sideshow. Once you have a $100-billion-market-cap company that all they can do is buy and sell crypto, it’s going to be the epiphany for everyone that this is real.”

Founded by Brian Armstrong and Fred Ehrsam in 2012, Coinbase from its early days had a mission of being accessible to everyone. Unlike many Silicon Valley startups that resist the reach of regulators, Coinbase was willing to work closely with regulators, banks, and venture capital firms early on to figure out how to operate within existing regulatory frameworks.

The partnership between Armstrong and Ehrsam was complementary in many ways. Armstrong was the quieter personality, while Ehrsam often lead the conversations. Armstrong had a computer science background, having previously worked as a software developer at IBM and Airbnb. While at Airbnb, he observed the difficulties of navigating payment systems globally. In particular, he noticed the challenges of sending money to South America. Armstrong had played an instrumental role at Airbnb building its payments and fraud detection platforms.

Shortly after leaving Airbnb, Armstrong started Coinbase with Ehrsam in 2012. The two met on a bitcoin subreddit forum. Ehrsam was a former foreign exchange trader at Goldman Sachs in New York. At the time they started Coinbase, bitcoin was priced around $6.

Silicon Valley venture capitalist Adam Draper was awed by Armstrong’s conviction in his company and the crypto markets more broadly. Draper remarked, “He said it could be a trillion-dollar market. I had never had a founder pitch me and say ‘trillion-dollar’, and he said it so rationally.”

Coinbase raised a $5 million Series A in 2013, led by Union Square Ventures. This was followed seven months later by a $25 million Series B round. Soon enough, Coinbase caught the eyes of other prominent venture capital firms, including Andreessen Horowitz. Andreessen Horowitz remains the largest outside investor in Coinbase, owning about $9.7 billion worth of shares in the company.

A major turning point for Coinbase occurred in 2017, when Ehrsam stepped down from his role as President of the company. The company’s growth was accelerating at full speed, and Armstrong found himself in need of help. Coinbase made a number of key hires, including Alesia Haas as Chief Financial Officer, Emilie Choi as President, and Asiff Hirji as Chief Operating Officer. Ehrsam still remains on the Coinbase board. He now runs Paradigm, a cryptocurrency investment firm.

In Coinbase’s last fundraising round in 2018, it was valued at only $8 billion. With a current valuation of $85 billion, this means that Coinbase is up more than 10-fold from the company’s last private fundraising round. Even more starkly, it is up more than 4,000-fold since its $5 million Series A round only eight years ago.

The price of bitcoin has more than doubled in 2021. The day before Coinbase’s IPO, bitcoin hit a record price of $63,707. On Wednesday, April 14th, the day of Coinbase’s IPO, bitcoin skyrocketed even higher to a record of $64,829. Putting this into perspective, just over a year ago bitcoin prices were $7,000. Other cryptocurrencies have seen similar price gains. Today the overall crypto market is worth over $2 trillion. Bitcoin represents around half of that total value.

Amid this price rally, Coinbase’s profitability has soared. In 2020, Coinbase reported $1.8 billion in revenue. The company expects its first quarter earnings to be between $730 million and $800 million. This contrasts with many Silicon Valley companies that IPO while operating with huge losses or that are unable to report a single profitable year.

Despite the wave of positive sentiment surrounding the company, some investors have remained more cautious or skeptical. David Trainer, CEO of investment research firm New Constructs, believes the stock is overvalued. He states, “I think it’s probably a good company, but not a good stock at anywhere near the current levels. The pricing is a function of investor sentiment and is not related to the underlying economics of the business or the basic laws of competition.”

Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.