Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.
In another step toward the mainstream adoption of crypto, one of the world’s largest cryptocurrency exchanges, Coinbase, went public on the NASDAQ. The April, 2021 listing made the company’s CEO and executives some of the richest people in Silicon Valley, and pumped the company full of new money from a fresh lot of eager investors.
It’s the first time a major crypto company has gone public on a US stock exchange. It’s considered a true measure of legitimacy for an industry once thought to have drug dealers and terrorists as its only patrons. Crypto, finally, has made its way onto Wall Street.Buy and Sell Bitcoin, Ethereum, and over a dozen other cryptocurrencies with Wealthsimple. Sign up and Trade here.
What is Coinbase?
Coinbase is a cryptocurrency exchange founded by Brian Armstrong, who worked at IBM and Deloitte. But it was at Airbnb where Armstrong witnessed the problems that arose from sending money between different countries. He was intrigued by the Bitcoin whitepaper, the document that introduced the concept of cryptocurrency, and began developing scripts to buy cryptocurrencies in his spare time.
Armstrong came to the conclusion that although Bitcoin was a revolutionary payments system, it was far too technical to go mainstream. And more than that, its adherents, obscure software engineers, had no motivation to make the system easier to use.
Armstrong decided that Bitcoin needed to be convenient in order to thrive—and that it was OK if this sacrificed some of Bitcoin’s decentralization. So Armstrong decided to create an exchange that made it easy to trade crypto: Coinbase.
To grease the wheels, the trading system would custody Bitcoin on behalf of its customers. Although this went against one of the main principles of Bitcoin—that it’s a decentralized payments system that requires no intermediaries—Armstrong’s system would cut down on fees and make trades near-instantaneous.
In 2012, Armstrong entered Y-Combinator, a California accelerator for startup entrepreneurs. He received rigorous training, access to a Rolodex of rich investors, and $150,000 to build his crypto exchange.
After he finished up at Y-Combinator, Armstrong convinced Fred Ehrsam, a former Goldman Sachs foreign exchange trader whom he had met on a Bitcoin subreddit, to join as co-founder.
The pair ran the show together until Ehrsam left in 2017, and were known for their intense leadership that championed workaholism. “They are tall and textbook fit, and as poised as Swiss bankers—Vulcan Swiss bankers,” wrote one Bloomberg reporter in 2014. “When they discuss Bitcoin, they rarely smile. Do not try to make them laugh.”
Armstrong and Ehrsam used their intensity to corral a huge amount of investment. In 2013, Coinbase received $40 million, and hit one million users a year later. In 2016, Coinbase received a further $75 million from backers such as the New York Stock Exchange. To date, Coinbase has received a total of $547.3 million in private investment to date, according to Crunchbase data.
In the Bitcoin price boom of 2017, during which the price spiked to just under $20,000, Coinbase grew and revenue topped $1 billion, according to an article in Recode that cited industry sources. Coinbase is now one of the largest cryptocurrency exchanges in the world and its wallet is among the most popular. Coinbase processed $13 billion worth of trades on May 13, 2021.
However, the exchange has encountered plenty of troubles along the way. The Internal Revenue Service ordered it to disclose personal information about some 13,000 customers who had traded more than $20,000, which its adherents thought violated the blockchain’s principle of anonymity.
And Armstrong in 2020 caught flack for his company’s “no politics” culture after he declined to use Coinbase to stand up for the Black Lives Matter movement. Employees should “act in service of the greater mission” and ”focus on what unites us, not what divides us,” he wrote in a blog post. More important than redressing social injustices unrelated to Coinbase was “sustained high performance,” he argued.
Armstrong offered generous severance packages to employees who disagreed. At least 60 employees quit following the memo. A few months later, the The New York Times reported on allegations of discriminatory treatment against Black workers at the company.
Coinbase goes public
Private investment will only take a company so far. And those investors—the ones who bankrolled Coinbase with almost half a billion dollars—needed a way to cash out. So, to raise even more money, Coinbase decided to go public.
It was thought that Coinbase would go public via an Initial Public Offering—the classic route for a startup, performed in conjunction with one or multiple investment banks. In an IPO, banks will travel far and wide with the startup team to pitch the stock to hedge funds and pension funds. Then the investment bank underwrites the stock, and often buys it all up before selling to said investors at a profit.
Investment banks can be helpful, but Coinbase didn’t think it was worth paying the huge fees that banks charge; he ran a very popular company and was well connected within Wall Street and Silicon Valley. Coinbase’s popularity only increased when Bitcoin soared to highs of $60,000 by April, 2021. So, Armstrong opted for a different route: a direct listing.
A direct listing would allow Coinbase to list its stock on an exchange directly, and without intermediaries. This foregoes the opportunity for institutional investors to snap up the stock first (which guarantees a sale), and cuts out the middleman. It’s cheaper, quicker, and seemed to make sense for Coinbase, a company that’s already immensely popular with retail investors and has a huge public presence.
A direct listing would also let Armstrong and his executives sell their existing shares directly on the exchange, instead of selling new shares for the purpose of an IPO. This allowed Armstrong to compensate the employees who had helped him build the exchange into what it is today.
Ahead of the listing, Coinbase disclosed that it had 43 million verified users, 2 million monthly active users and had processed $456 billion in transactions since its launch in 2012. The company was rumored to be worth nearly $100 billion, comparable to Facebook’s valuation of $104 billion when it debuted on the stock market in 2012.
And Coinbase had even achieved that rarest of feats for startups: turning a profit before it had even gone public. Shortly before it went public, Coinbase disclosed that it had made $322 million the previous year. Coinbase made this money money by charging trading fees on its brokerage app and exchange. Coinbase’s fees are far higher than its main rival Binance, but it also enjoys greater compliance with US regulators, who banned Binance from operating in their country.
An investment in Coinbase was set to be an investment in the hottest company in crypto. A bet on Coinbase is, naturally, an investment in Bitcoin and the inherent volatility of that market. But it’s also an investment in Armstrong’s leadership and a bet on his ability to connect crypto with Wall Street. And so far, Armstrong proved to his private investors that this had paid off—and his efforts no doubt contributed in some major way to Bitcoin’s booming price.
Eventually, Coinbase decided to list its stock on the NASDAQ exchange. Why the NASDAQ and not the New York Stock Exchange, which offers a more liquid market and was one of Coinbase first investors? Simple: the NASDAQ had the rights to the four-letter ticker, COIN. “That was a really great ticker for us to get,” said Coinbase’s Chief Financial Officer, Alesia Haas.
Coinbase went public on April 14, 2021 at a price of $381. It hit highs of $429 but sunk to $328 at closing. Coinbase has only slumped since then. The stock closed at lows of $263 on Friday, May 7, and hasn’t recovered since. Perhaps that’s because Bitcoin’s market stagnated, then declined, following the listing.
How to buy Coinbase stock?
Now that Coinbase shares trade on the NASDAQ, you don’t have to be a venture capital firm to invest in the company. You can buy Coinbase stock just as easily as you can shares in Amazon, Google, or Tesla—through any brokerage that’ll accept you. Unlike many crypto exchanges, brokerages are highly-regulated. The ticker for Coinbase is COIN.
Once you have an account, you can buy the shares in a couple of different ways. One of these is a market order, where you order a certain quantity of shares at the given market price. The alternative is a limit order, which is where you set the highest possible price at which you are willing to buy, and your order will be placed on an order book waiting to be filled.
You can also buy Coinbase stock as… a cryptocurrency, confusingly offered by Coinbase’s biggest rival, Binance. On the day of Coinbase’s listing, Binance listed a tokenized version of the stock. This functions as something like an IOU for Coinbase stock, only you can’t redeem the stock or vote on shareholder decisions. You also can’t take this stock out of Binance’s exchange. The benefit is that anyone can trade this stock, even those that don’t qualify for brokerage accounts.
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