After ignoring and even knocking bitcoin for years, Wall Street is changing its tune about cryptocurrencies.
Coinbase, the largest cryptocurrency exchange in the U.S. (and one of the largest in the world), is on track to go public later this year. The latest rumor is it tapped investment bank Goldman Sachs to lead its initial public offering (IPO) process.
This week, Coinbase notified its shareholders that it will sell stock privately on Nasdaq’s private market—a common move for a company heading towards an IPO.
This is a huge deal. It’s another example of how the cryptocurrency ecosystem keeps expanding into Wall Street… And why cryptos’ massive growth story remains intact.
As you probably know, bitcoin has exploded higher in recent months, hitting a new all-time high above $40,000 a couple weeks ago. I’ve noted that the recent rally is different. For the first time ever, much of the buying is coming from big institutions.
Plenty of companies are jumping into the crypto space. This includes payment processors like Square and PayPal; both companies recently bought bitcoin and expanded their operations to allow customers to buy and sell cryptocurrencies.
These companies’ easy-to-use platforms are bringing hundreds of millions of customers into the crypto ecosystem. And they’re not the only ones driving the price of bitcoin higher.
Business intelligence giant MicroStrategy purchased over $1 billion worth of bitcoin to hold as an asset. And even the 169-year old insurance giant, Mass Mutual, invested $100 million in bitcoin last month.
But the Coinbase IPO will open a new chapter for the crypto industry. Investors will get a close look at how big—and profitable—the crypto space has become. That’s because Coinbase will need to file its financial records before it goes public.
In other words, we’ll get to see years of business results for the popular exchange.
We’ll likely learn that Coinbase is a money-making machine. It has over 40 million users and does business in over 100 countries. Most importantly, it has over $90 billion in assets on its platform.
Olaf Carlson-Wee, who was the first employee at Coinbase and is now CEO of Polychain, an investment firm that actively manages investments in blockchain, explained why he thinks Wall Street will be impressed with Coinbase: “This isn’t a pre-revenue, social media company, This is a real hardcore financial services business with hundreds of millions of dollars in revenue.”
Put simply, Coinbase’s business likely generates massive profits. It’s similar to a Las Vegas casino, where the house always wins.
When Coinbase goes public, it’s expected to have a valuation between $20–70 billion. That may sound like a ridiculous range, but the company hasn’t released its financial statements yet. We’ll have to wait for further disclosures to find out how profitable the company is. Given investors’ excitement, I expect the offering will end up closer to the higher end of the range ($70 billion).
Brace yourself. This will be a massive IPO… and a huge step forward for the crypto industry.
Coinbase will need to make sure it has the blessing of regulators, including the Security Exchange Commission (SEC). The company already adheres to critical regulatory practices like Know Your Customer (KYC) and anti-money laundering (AML). It’s also very selective about which countries it operates in and which cryptocurrencies it allows users to trade.
Coinbase generates the majority of its revenues through trading fees. Going forward, the company will likely expand into other products and services, making it more like other financial service companies. It could eventually offer loans or collect fees for advisory and wealth management services.
Individual investors need to pay attention to this IPO. Even if you don’t own any crypto, the Coinbase IPO will have huge implications for the entire financial sector. It will provide a glimpse into one of the fastest-growing exchanges in recent history. And we’ll also get an up-close look at the fundamentals of the crypto industry.
Editor’s note:
Security tokens, a new sector of digital currencies, are about to upend the stock market. A former stock exchange chairman recently said, “In five years, 100% of the stocks and bonds on Wall Street will be tokenized.”
This could spell the end of the New York Stock Exchange as we know it…
And it will mean life-changing gains for investors who get in on it early.
