Cryptocurrency has gained huge popularity recently amongst investors, as Bitcoin — the largest digital currency — reached record levels in 2021, after increasing more than 300% than the year before. This has spurred the use of cryptocurrency exchanges in order to fulfil transactions, including that of Coinbase, which became the first public listing for online crypto exchange in April of this year.
When it comes to foreign exchange (forex) trading, crypto is known to be a risky investment, and so the introduction of Coinbase as a public stock market listing could be a pioneering way for investors to get involved in the digital currency world, with experts predicting this will accelerate the interest in crypto investments.
With attention fully on the cryptocurrency exchange, we look further into how Coinbase reached a level that could be deemed higher than the worth of oil.
The history of Coinbase
Coinbase was established not so long ago in 2021, but since then has acquired over 56 million users, across more than 100 countries. Based in the US, its revenue is accumulated through the fees that they charge users to complete transactions, and therefore benefits from the increasing popularity and demand for crypto trading.
As an online cryptocurrency exchange, it includes on average 50 cryptocurrencies, that can be traded on their platform, including the largest players in the field, Bitcoin (BTC) and Ethereum (ETH).
As it has a close-knit relationship with BTC, the surge in value of the digital currency saw Coinbase report an estimated $1.8 billion in revenue for the first quarter of 2021 — significantly more than its revenue for 2020, as it experienced a growth of 900% in comparison. Their profits are also estimated to be between $730 million and $800 million in the first quarter of this year.
In March 2021, it was the largest cryptocurrency exchange in the United States in terms oftrading volume and as of April in the same year, went public on the Nasdaq exchange via a direct listing.
Coinbase and the forex market
Cryptocurrency can be exchanged like traditional currency pairs on the forex market, and are paired against other digital currencies or major fiat currencies like the US Dollar (USD), the British Pound (GBP), and the Euro (EUR).
A crypto exchange involves holding your currency in a crypto wallet, and like in the case of Coinbase, having to pay a transaction fee. This involves purchasing the crypto directly, whereas other online trading platforms allow for financial derivatives that enable the speculation on price movements, without owning the underlying currency.
The growth of crypto exchanges can be attributed to the increase in crypto trading. The stock market price of Coinbase, will therefore be directly related to any currency pairings that involve cryptocurrency, especially the main types of BTC and ETH. This could still be a risky investment, as the crypto market is highly volatile. However, the wide range of cryptocurrencies that can be traced via Coinbase may offset any erratic price movements on the single, main cryptos.
Coinbase as a tradable stock
As of April 2021, Coinbase was listed on the Nasdaq exchange under the symbol ‘COIN’ as a direct listing, which removed the need for involvement from investment banks to set the share prices. Prior to its trading on the stock exchange, it had around 115 million shares that were set to be sold directly to the public.
As a reference, Nasdaq set a value of $250 a share, based on the company’s reports on revenue and profit, and had an estimated company worth of $47 billion. However, the shares debuted with a stock price of $381, which at the time was worth more than stocks in other established firms, such as multinational oil and gas companyBP, and gave the company a valuation of about $86 billion.
It appears that the effects of the pandemic have negatively impacted the value of oil stocks, whereas cryptocurrency, and now the relevant stock of Coinbase, have soared. By the end of the trading day, Coinbase closed at a price of $328.28 a share. Throughout its first day of trading, it saw highs of $430 and lows of $118 in price.
Future of cryptocurrency exchanges
The growth of interest in cryptocurrencies and newly listed companies, means that some investors and financial experts have seen Coinbase stock as competition forthe more traditional types of investments. In the long term, the value of its stock is expected to continue to grow alongside the volume of crypto trading.