The digital age is upon us, folks.
Bitcoin shot through the $60,000 barrier to post a new all-time high of $63,728 just moments ago.
And just so you know how insane this move is, I have had to edit that last sentence three times since I began writing.
The supposed motivation for today’s crypto craziness is the direct-listing IPO of top cryptocurrency wallet Coinbase (Nasdaq: COIN), which takes place tomorrow.
Coinbase is an absolute behemoth in the industry, with $223 billion in assets under the platform, and $335 billion in quarterly traded volume.
But in terms of monthly transacting users, there were only 6.1 million in the first quarter of this year.
That’s not just small against its 56 million verified users — only 11% — but it’s miniscule versus what this market could actually become.
And while I’m hardly a Bitcoin maximalist, I think this might turn out to be the most important IPO of 2021.
Aside from digital currency asset manager Grayscale, Coinbase is the first pure cryptocurrency stock to be publicly listed.
“Groundbreaking” doesn’t even begin to be able to describe it.
To me, the IPO symbolizes a legitimate bridge between the disruptive, decentralized world of cryptocurrencies and what we think of as traditional markets.
But even more importantly, it brings some much-needed public transparency to the crypto industry. Ultimately, I think that will make it less obscure and more investable to larger institutions, which in turn can win over even the most skeptical retail trader.
And frankly, after a quick look under the hood, I’d say that is a likely outcome.
The company filed their S-1 — the initial SEC registration form for new securities — back in March, and the numbers looked solid even then.
The crypto industry was a huge benefactor of the COVID-19 pandemic, as retail traders flush with cash from stimulus payments waded into the market en masse.
Coinbase particularly benefited from Bitcoin’s 400% run from March through September, with revenues nearly doubling over the prior year in the third quarter to $315 million.
And when crypto started to go vertical in Q4 against rising inflationary pressures, revenue nearly doubled again, rising to $585 million.
But they weren’t done yet.
Coinbase’s preliminary Q1 results, released just a week ago, show that as Bitcoin went bananas and Ethereum also got in on the act, the company’s revenue more than tripled the previous quarter’s level, coming in at an incredible $1.8 billion.
Source: Company Filings, CNBC
And now that Coinbase is going public, the coverage alone is likely to increase traffic on the site.
The financial news industry hype machine is already working overdrive, with both Fox Business and CNBC crafting catchy headline after catchy headline in an effort to monetize our collective attention…
And Google search data shows us it’s working.
Because of that, Coinbase stock is likely to be extremely volatile tomorrow. So volatile, in fact, that the company mentions the words “volatile” or “volatility” 90 times in its prospectus.
Are we still going to buy some?
Yes… But no more than 1/10 tranche of any intended stake, with the intention to sell half immediately if it happens to double.
I can’t say for sure what price action will look like, well, because we haven’t seen it yet.
Analyst valuations have been set at anywhere from $19 billion to an incredible $230 billion, so buckle up everyone.
Sorry for the terrible Star Wars/Yoda reference… couldn’t resist.
If the potential volatility concerns you here, I don’t blame you.
Were I an early investor in Coinbase — generally done through private capital raises — I would be currently counting down the days until my lockup period ends and I can finally monetize some of my prior investment… In fact, that’s where some of that future volatility will come from.
But the vast majority of those capital raises are reserved for large institutions and high-net worth investors willing to tie up large amounts of capital over longer periods of time.
That said, the SEC has liberalized some of those individual requirements over the years to allow for broader participation in capital markets by non-traditional, non-accredited investors.
And I do want to point out a couple of things here.
First, cryptocurrencies in general attract non-traditional, non-accredited investors.
And secondly, that Coinbase only represents about 1/10th of the total cryptocurrency assets on wallet platforms.
In fact, there are several different types of crypto wallets — mobile, desktop, paper, hardware and online, for instance — each having different pros and cons, and each occasionally wading into the market to raise capital.
And I wanted to bring this up because there is one such event happening as we speak — from a growing, cash flow positive company, no less. I just can’t discuss it at length here for compliance reasons, unfortunately, as this audience is quite large.
However, I can tell you our colleague Adam Sarhan is likely to report on it soon, and you can gain access to his analysis for just $7 per month.
I wouldn’t bring it up if I didn’t think it was worth your time… I actually think it’s a solid opportunity.
If you’re interested, please feel free to just click here to register.
And I’ll be back on Thursday to round up what is shaping up to be a significant week for those of us in the macro world.
All the best,