Well, folks, it’s been a big week for cryptocurrency on a global scale. The success of the launch of Coinbase’s public offering was described by the New York Times as a ‘coming out party’ for cryptocurrency. Finally, they said, crypto has hit the mainstream.
The public offering, which was structured as a direct public offering (DPO), was certainly a hugely important movement for crypto. However, while it may have been crypto’s ‘coming out party’, the DPO was arguably only the latest in a series of crypto’s movements into the mainstream cultural and financial worlds.
Just within the last several months, the crypto world has seen Tesla, Square and many others add Bitcoin to its balance sheet; it has seen Visa announce plans to settle transactions on the Ethereum blockchain. Paypal has announced that users can pay merchants in cryptocurrency. Additionally, the US government gave a federal banking charter to cryptocurrency custody firm, Anchorage in January.
“This week has been nothing but a bonanza of activity in the space on all fronts,” said Aaron Rafferty, Chief Executive of R.F. Capital, in an email to Finance Magnates.
“Large institutions including Microstrategy, Paypal, Fidelity, the Rothschilds and Walmart have [indicated that they will be making] further additions of Bitcoin to their already extensive balance sheets,” he said. “Ripple’s XRP has seen significant price action as well nearly cusping $2 with news of a recent legal win. Gary Gensler was confirmed by the Senate as Biden’s pick for SEC Chair, a huge win for the space overall.”
“This week we also saw an update to the Ethereum blockchain via the Berlin hard fork. It’s been a huge week for DeFi and the altcoin market with MKR and DOGE soaring. The NFT space also continues to grow as there was the first NFT art gallery this week. It’s clear that sentiment and fundamentals are high and the price is responding.”
In other words, there has been a lot happening in the way of ‘mainstream’ adoption of crypto. Still, Coinbase’s DPO is an important moment and markets seem to be reflecting that.
What Does Coinbase’s Public Offering Really Mean For Crypto?
While the price of Bitcoin may not have exploded upwardly as many seemed to think that it would, BTC has shown some newfound strength over and above $60K, a level it has crossed before, but never managed to hold for a sustained period of time.
As of today, Bitcoin has been over $60K for almost five days. At press time, BTC was trading at roughly $61,780. At its highest point, Bitcoin climbed over $64,000 for the first time on Wednesday.
At the same time, the price of Ethereum is performing better than ever before. ETH hit a new all-time high (ATH) of roughly $2,550 approximately 10 hours before press time. The new ATH came shortly after the Ethereum network successfully deployed the Berlin upgrade onto its mainnet.
However, some analysts are attributing part of Ethereum’s recent rise to the success of Coinbase’s public offering.
Nicholas Pelecanos, Head of Trading at NEM, told Finance Magnates that: “beyond being a landmark event in the crypto space, the Coinbase IPO signals the transition from crypto being a fringe alternative asset to being accepted by institutional investors.”
Getting Exposure to Coin: Could Coinbase List Coin on Its Own Exchange?
Similarly, Manuel Rensink, Strategy Director at Securrency, told Finance Magnates that: “the $COIN listing will be a huge shot in the arm for the credibility of digital assets, particularly for those listed on Coinbase, which include a range of stablecoins, DeFi coins, utility coins, but not yet digital securities.”
“No doubt a next step will be for $COIN to list on Coinbase and not just Nasdaq,” he said Ironically, “this might happen on one of Coinbase’s biggest competitors, Binance, the new purveyors of $TSLA stock tokens, before it happens on Coinbase itself.” Indeed, Binance has said that it will be listing COIN stock tokens as synthetic assets on its cryptocurrency exchange.
“Of course, non-US investors can already get exposure to $COIN on another huge exchange, FTX, valuing $COIN at almost $150 billion. FTX’s token, $FTT, stands to benefit from a successful Coinbase listing, as will many other CEX’s and DEX’s. More importantly, as more blockchain companies will join $COIN on Nasdaq, alongside a string of Bitcoin ETFs, we believe that the digital markets will start driving the traditional equity markets, triggering trillions in capital flows.”
What Will Coinbase Do With the Influx of DPO Capital?
And as the money comes in, Coinbase will likely continue to use it to build out its cryptocurrency ecosystem, particularly the parts that serve institutional investors.
“Coinbase, which facilitated Tesla’s $1.5bn entry into Bitcoin, will continue to build out institutional services and infrastructure,” Rensink told Finance Magnates. “With its listing, one more barrier has been removed for others to follow Tesla’s lead.”
And, if other large institutions and corporations go the way of Tesla, BTC will likely be the gateway. “Bitcoin will be the entry asset for most institutions,” he said.
Legal Risk Factor Beneath Ripple’s Lawsuit from SECGo to article >>
Coinbase could also use some of its capital to clean up certain parts of Bitcoin’s reputation. “For those institutions that are hesitant due to perceptions of Bitcoin’s poor Environmental, Social and Corporate Governance (ESG) credentials,” Rensink told Finance Magnates. “Coinbase (and others) could facilitate the purchase of Bitcoin produced in a sustainable manner (e.g. with Canadian hydro-energy, not Chinese coal-energy) and by known and vetted miners.”
In this way, Coinbase could help to speed along the trend of crypto and DeFi adoption. “We are at an inflexion point of mainstream adoption,” Rensink said.
Regulatory Progress Could Hinder the Growth of Crypto Prices and Crypto-Financial Institutions
“The trend we’ll see is a movement from a decentralized ideal that works for a small subsection of the population, to a much more hybrid model where decentralized finance becomes open finance,” he continued.
This system will operate such that “regulated operators can add value with a better user experience and capture value through more traditional equity models while leveraging network effects from an open-source, building-block financial system that prioritizes accessibility over decentralized puritanism.”
Of course, the keyword here is ‘regulated’, the cryptocurrency industry still has quite a ways to go before a comprehensive set of regulations are developed wherever crypto firms are operating. Masakazu ’Senshi’ Kikuchi, Chief Executive of Secured Finance, told Finance Magnates that in this way, “there are potential challenges for banks to expand the crypto business is the cryptocurrency’s risk weight under BIS regulation. So, the instalment of full-scale crypto finance could take time.”
“The rapid growth and success of Coinbase building a crypto bank provides a far more existential risk to legacy institutions.”
All the same, progress is being made. Crypto-financial institutions are gaining ground in the mainstream financial world. If anything, the Coinbase DPO may be the most prominent example of this so far.
Seamus Donoghue, VP of Strategic Alliances at digital asset infrastructure provider, METACO, told Finance Magnates that: “legacy financial firms are already seeing their most profitable services being disrupted by fintech, with fintech firms forcing banks to compete with a new business model.”
“However, the rapid growth and success of Coinbase building a crypto bank provides a far more existential risk to legacy institutions,” he explained. “The full range of services provided by Coinbase potentially provides a permanent exit out of the legacy banking system to a completely new global digital-crypto banking model.”
“A listed equity will be a new currency for Coinbase to leverage for inorganic growth through acquisition. No doubt the pace of growth will force legacy institutions to acquire instead of risking the long time-to-market required to build their own solution. Banks will increasingly be competing against better funded, more agile and faster-growing firms such as Coinbase to acquire the right talent and the next business model. It will be a tough race for incumbents, and they have no time to lose.”
“Coinbase Stock Will Likely Act As a Conduit for Mainstream Money to Gain Exposure to the Crypto Ecosystem.”
However, the correlation between Coinbase’s public offering and the growth of prices in crypto markets is not crystal-clear.
In fact, crypto investor and YouTuber, Simon Johnson told Finance Magnates that he believes “the Coinbase IPO appears to have little to no immediate effect on the price of Bitcoin.”
“However, as early Coinbase investors cash out and sell their shares, it could be expected that some of that money could go back into Bitcoin,” he explained. “To use a mining analogy, it makes sense to own both the ‘picks and shovels’ and some gold. Taking a more longer-term view, I’d hope that Coinbase listing sets a firm foundation for future organisations in this space. It reminds me of the pre-dot com era when Netscape went public, and many tech companies followed.”
Similarly, Pelecanos said that: “Coinbase stock will likely act as a conduit for mainstream money to gain exposure to the crypto ecosystem. As a result, I expect the stock to correlate closely with the BTC price action.”
“The broader impacts of this IPO for crypto will likely see further interest in the space due to the publicity of the event, further institutional adoption and strong price appreciation of exchange tokens like Binance Coin (BNB) and FTX Token (FTT), contingent, of course, on a successful listing for Coinbase.”
And even beyond crypto exchange tokens, there could be even bigger growth of the crypto ecosystem should firms like Binance and FTX choose to go public.
Johnson said that: “this is something that nobody is talking about. The 100-pound gorilla: Coinbase’s competitor, Binance. Binance has more cryptocurrencies listed, their fees are cheaper and they’re much bigger than Coinbase,” Binance CEO Changpeng Zhao told Bloomberg in an interview that they are ‘not looking at an IPO’ and they are ’cash-sufficient,’ and ‘profitable’. But, will this be the case forever? Watch this space.
What do you think about the future of public offerings within the cryptofinancial space? Let us know in the comments below.