NEW YORK (AFP) – Cryptocurrency exchange Coinbase made a dramatic stock market debut on Wednesday amid frenzied interest in bitcoin and other virtual currencies despite concerns about a bubble.
The enterprise, the first company devoted entirely to cryptocurrency to enter the United States (US) stock exchange, debuted on the market well above its reference price and quickly rocketted higher before pulling back somewhat.
The premier “went successfully”, said Chief Market Strategist Art Hogan at National Securities.
“We’ll have to see how this plays out and then see if this particular publicly traded stock is as volatile as the cryptocurrencies that it transactions.”
Coinbase opened on the Nasdaq at USD381 per share, 52 per cent above its reference price and rising as high as USD429.54 before finishing the day at USD328.28. The company ended the day with a market value around USD86 billion after topping USD100 billion earlier in the session.
Coinbase chose a direct listing, which does not allow it to raise new funds but does offer current shareholders – founders, employees and historical investors – the opportunity to sell their shares on the market.
Spotify, Slack, Palantir and Roblox have also used this method for their Wall Street debuts. Coinbase has benefitted from bitcoin’s meteoric rise over the past year, with the crypto asset’s price rising from USD6,500 last April to new records of as high as USD64,000 on Wednesday before retreating somewhat.
Other virtual currencies – such as ether, Litecoin or Stellar Lumens – have also surged in line with bitcoin. The Coinbase entry “is potentially a watershed event for the crypto industry”, said Daniel Ives at Wedbush Securities. “Coinbase is a foundational piece of the crypto ecosystem and is a barometer for the growing mainstream adoption of bitcoin and crypto for the coming years, in our opinion.”
Founded in 2012 in San Francisco by Brian Armstrong and Fred Ehrsam, the platform allows users to buy and sell about 50 cryptocurrencies, including bitcoin and ether.
As a result of this craze, Coinbase’s revenue has increased almost tenfold in the course of a year to USD1.8 billion in the first quarter, according to company estimates. Its profit increased 25-fold, in the range of USD730 million to USD800 million. The success of Coinbase and cryptocurrencies in general has given some rivals ideas: the head of the California-based cryptocurrency exchange platform Kraken told CNBC last week he hopes to take his company public next year, also via a direct listing.
If the situation seems favourable to Coinbase, questions remain the order of the day among observers, who recall the company’s dependence on the price of virtual currencies, which tend to be volatile. Federal Reserve Chair Jerome Powell sounded a cautious note on Wednesday, calling cryptocurrencies “really vehicles for speculation” during an appearance at the Economic Club of Washington.
“No one is using them for payments for example like the dollar,” Powell said. “It’s a little bit like gold. For thousands of years, human beings have given gold this special value that it doesn’t have from an industrial standpoint, but nonetheless for thousands of years they’ve done so.”
Before its spectacular rise in recent months, bitcoin had experienced setbacks, particularly in 2018 when it kept falling. Some also are drawing attention to the distrust of lawmakers in several countries who are concerned about cryptocurrencies being used for illicit purposes.
“The bigger question is whether any valuation is sustainable, particularly given how many governments aren’t particularly enamoured of cryptocurrencies,” Hewson said.