The following article should not be taken as investment advice but is instead of our observational opinion. As Coinbase starts to release financial statements, we may begin to change our view on the IPO.
Coinbase has recently filed for a draft registration statement with a Form S-1. You can find the official details of this registration on Coinbase’s blog, published on December 17th, 2020. The document’s public version will be released when the SEC looks over it and approves the statement.
Coinbase has made history as being the first cryptocurrency exchange to go on the public stock market. Coinbase announced this filing during a cryptocurrency boom where Bitcoin and Ethereum have gone to see all-time highs.
Messari, a crypto research company, has estimated that Coinbase could be posting an astounding $28,000,000,000 valuation in a recent article.
The dilemma with the Coinbase IPO
Traditionally an investment in a company like Coinbase would be incredibly lucrative since they are a top-five leader in an innovative space with few regulated competitors.
However, since we’re dealing in the cryptocurrency sector, we need to look at the investment from the ground.
Let’s dumb down the investment in a scenario.
Decentralized currencies end up dying and go down the toilet.
Well then, Coinbase will be hit hard, and you will lose money via the stock price plunging.
Decentralized currencies succeed and continue their uptrend.
Coinbase’s stock price goes up since they are making more profit via the exchange transaction costs. Decentralized currencies also increase, and you’re left with fiat cash that, in return, could buy less of the crypto that you believe in.
Both viable options seem to be worse than merely owning decentralized currencies like Bitcoin or Ethereum. In the short term, investors might ride an irrational pump from Coinbase launching, but during the long term, Bitcoin and Ethereum should outpace the Coinbase stock if a cryptocurrency does well in the future. (Again, not investment advice.)
The only way the Coinbase investment seems like it would make sense would be if you think cryptocurrency will remain flat price-wise. If you believe that Bitcoin will be up/down a small fraction in the future but think there will be enough demand to support the Coinbase soaring valuation, then the stock would make a little sense.
To learn more about the Coinbase IPO, watch for updates on their announcement blog.