Wednesday April 14, 2021
Crypto industry on the road to success
Coinbase is booming on Wall Street
The US trading platform Coinbase is making a remarkable debut on the stock market. Currently, the hub for cryptocurrencies is even worth more than any traditional exchange operator. But experts warn of unpredictable risks.
The timing could hardly be more favorable: In the midst of the current Bitcoin record hunt, Coinbase, a heavyweight in the crypto industry, is going public. As of today, the largest US trading platform for digital currencies can even be bought as shares. The financial markets had been looking forward to the debut for weeks. For the booming cyber currency niche, long dismissed as an adventurous fringe phenomenon in the financial world, it is a milestone on the way to Wall Street mainstream. The premiere on the Nasdaq tech stock exchange reached enormous proportions: At 381 dollars, the price was more than 50 percent above the reference price of 250 dollars.
Coinbase started with a stock market valuation of around $ 100 billion. This means that the crypto trading venue is being traded higher than any traditional exchange operator worldwide. For comparison: The Nasdaq, on which Coinbase had its shares listed by direct placement – i.e. without expensive support from investment banks and a prior pricing process – currently has a market value of 26 billion dollars. “The crypto economy is only just beginning,” promises Coinbase co-founder and CEO Brian Armstrong to investors ahead of the IPO. In fact, his company is on its biggest wave of success since it was founded in 2012.
In the first quarter alone, net profit is likely to have been between $ 730 million and $ 800 million, as Coinbase recently announced. That would be more than twice as much as in the whole of last year. In terms of sales, Coinbase expects 1.8 billion dollars for the three months to the end of March, which would also significantly exceed the total result of 1.3 billion from the previous year. User numbers rose sharply during the latest crypto rally and were most recently at 56 million. With the quarterly report, Coinbase succeeded in setting an impressive exclamation point before going public.
Violent fluctuations in crypto rates
But what about the long-term prospects of success? Coinbase boss Armstrong himself makes no secret of the fact that the current soaring does not allow any particularly reliable statements about the future. The company’s profitability stands and falls with the rates and trading volumes of cryptocurrencies like Bitcoin, as it primarily earns from fees. Seen in this way, there is an “inherent unpredictability”, as Coinbase itself admits.
In the past, the business was subject to extreme fluctuations. During the crypto crash in 2018, when the Bitcoin price plummeted by over 70 percent and that of other cyber currencies such as Ethereum even more, Coinbase’s business also collapsed. The following year 2019, when most of the crypto investments were limping in front of them, was not very lucrative for Coinbase and ended with a loss of 30.4 million dollars.
Then, in 2020, the big rally started and transaction revenues rose 137 percent. Armstrong is aware of the risks: “We could lose money,” he warns investors. The aim of the company is currently to operate roughly at “break even”, ie at the breakeven point. However, Coinbase has always taken a long-term view and is assuming that the crypto industry will only develop its full potential in the future. “We are looking for long-term investors who believe in our mission,” said Armstrong.
However, experts are not only concerned about the sharp fluctuations in crypto prices and trading volumes. Investors also need to be aware of regulatory risks. Jesse Powell, head of Coinbase rival Kraken, recently warned on CNBC that governments would crack down on digital currencies. In fact, this would not come as a surprise – Bitcoins are repeatedly criticized for their illegal use and have long been considered a regulatory construction site, and not only in the USA.
Customers complain about hijacked accounts
However, Coinbase has other problems that are easily drowned in the current hype. The company, which describes “creating an open financial system for the world” as a mission and “more economic freedom for every person and company” as a vision, is repeatedly criticized for its customer service.
In forums on the Reddit discussion platform, for example, a number of customers complained that their accounts had been frozen for no stated reason. There are also reports of hijacked user accounts. The allegations have already led to at least one class action lawsuit.
Coinbase justifies itself with the rush of customers. The high demand leads to unique challenges. The company has already hired 2000 additional employees in customer service. Coinbase also emphasizes that it has never been hacked. Cyber attacks and technical breakdowns are a sensitive topic for crypto exchanges, not least because of the collapse of what was once by far the largest trading platform, Mt. Gox. The bankruptcy plunged the Bitcoin market into a deep crisis in 2014.
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