5 min read
Wednesday will mark a major milestone for the cryptocurrency industry when San Francisco-headquartered Coinbase lists its shares on the public stock market via direct listing on the Nasdaq exchange. Coinbase is the first U.S. crypto company to go public, offering investors a new way to get exposure to Bitcoin and other aspects of the fast-growing sector.
For those thinking of buying Coinbase shares, here's an overview of how the process will work, as well as some facts to consider if you're wondering whether to buy shares.
Coinbase went public on April 14, and shares began available mid-day New York time. The delay was due to the company's decision to pursue a direct listing, which is when employees and other insiders have the option to sell their existing shares, rather than the company issuing any new stock as would happen in a conventional initial public offering. Coinbase last month earmarked 114.9 million shares for its listing.
Reports on Tuesday suggested the reference price would be $250. This is lower than initial rumors that one share Coinbase stock would initially sell for around $400. Update: The shares debuted at $384—a 52% pop from the reference price—and have traded as high as $440.
This price reflects the value of recent transactions on private markets that allow professional investors to trade the stock. The actual opening price will be determined late Tuesday night or early Wednesday by the Nasdaq with the help of bankers.
The opening price—$250 or $400 or otherwise—will only be in effect very briefly. After that, market demand will determine how much the shares cost, meaning Coinbase shares could trade higher, especially if there is an opening day pop. Of course, they could also trade lower.
You can buy Coinbase shares the same way you would buy Apple, Tesla, or any other publicly trade company. You'd place an order with a retail brokerage such as Fidelity, Robinhood, Etrade, or Charles Schwab.
As with other stocks, you can place a market order or a limit order. If you opt for a market order, you are telling the brokerage to buy a quantity of shares at whatever price they are trading for—meaning you could end up paying more than you expect. If you are worried about paying too much, opt for a limit order. This amounts to an instruction to your brokerage to purchase getting any shares at all if Coinbase shares remain above the target you set).
Coinbase will trade on the NASDAQ under the ticker COIN.
That is an investment decision that is yours alone. As with the purchase of any type of stock, you could make money if the company performs well over time, while you could lose some or all of it if Coinbase underperforms or fails entirely. You also need to think about your stock investing timeline.
Coinbase has established itself as the best-known cryptocurrency company in the world, the closest thing to a household name in the space. Many investors now see betting on Coinbase as a way to bet on crypto more broadly. And unlike many other hot startups that go public, Coinbase is profitable—showing that it can not only generate revenue from customers, but it can make money too.
The company recently posted spectacular first quarter earnings that reflected rapid growth and an estimated profit of $730-$800 million. To put that in perspective, Coinbase made more money last quarter than Square, a long-established fintech giant, which reported $294 million in profit—while Uber, a one-time darling with investors, lost nearly $1 billion.
Not everyone is impressed by Coinbase's recent results. One analyst recently declared the company's current valuation to be "ridiculous, and stated it should be worth about a fifth of its current price. His skepticism stems from a belief that the crypto market is still relatively immature, and that Coinbase's profit margins will erode as a growing number of other firms offer cheaper trading services.
The Wall Street Journal, meanwhile, also notes that Coinbase's valuation "might erode as crypto markets mature." The article also cites analysts who suggest that the company's current price-to-earnings (P/E) ratio—a key figure in assessing a firm's valuation—is around 90, which is unusually high. Numerous other market watchers have also noted that Coinbase is unlikely to replicate its blowout 2021 Q1 results, especially if the current white-hot crypto market cools off.
No. Coinbase is still a growth company, so your only opportunity to reap a profit will be if the share price goes up and you sell some. Coinbase could issue dividends in the future, but that's unlikely to happen for many years.
Your decision about whether to buy Coinbase at its debut has to depend on where you view the company heading in the future, and, more broadly, where you see the larger crypto industry going.
This story was updated to reflect price movements on Wednesday after Coinbase shares listed on the NASDAQ.
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