Crypto exchange Coinbase experienced a rocky stock market debut

Stocks of Coinbase seesawed on April 15 following its trading debut as markets struggled to place a value on America’s biggest cryptocurrency exchange.

Shares initially spiked as much as 6.4 percent, though a choppy session eventually saw shares close at 1.7 percent at $322.75. All in all, nearly 40 million Coinbase shares changed hands during Thursday’s session. This makes it among the most actively traded companies with a market value above $25 billion.

The exchange was briefly valued at as much as $100 billion during its Nasdaq debut on Wednesday, April 14, a landmark event for the cryptocurrency industry.

A landmark moment for crypto industry

Coinbase’s debut was hailed as a “watershed” moment for the crypto industry. It followed years of skepticism from Wall Street giants and global regulators.

That said, there are still concerns that volatility in digital assets and regulatory uncertainty may hold the exchange’s share price in the long term. In addition, other players such as Binance, Gemini and Kraken are also expected to give Coinbase fierce competition.

That said, some experts are downplaying the exchange’s competitors, saying that Coinbase is a much better bet for investment.

Talking to CNBC, University of Sussex Business School professor Carol Alexander stated that, compared to its competitors, “the risk management from a regulatory and the operational perspective is much better on Coinbase.”

“They’ve got this solid revenue stream from the fees and the custodial services as well,” she said. “There’s no real competitor to them on the centralized exchanges because Kraken, Gemini – I don’t think they’re the next ones to go.”

The crypto exchange made an estimated $1.8 million in revenue during the first quarter of 2021, a ninefold increase from the same period last year. Its profits surged from $32 million to between $730 million and $800 million. At the same time, its monthly transacting users rose to 6.1 million from just 2.8 million three months earlier.

As of March 31, Coinbase held 11.3 percent of the world’s crypto assets. According to analysts at BTIG, this market share was the “core” to the bull case for the company.

Should the market value of all cryptocurrencies continue to grow, then Coinbase’s upside could be “immense,” BTIG analysts said.

Doubts remain on the future of crypto

Even as Coinbase celebrates its successful stock market debut, some doubts about its long-term prospects, and that of cryptocurrencies in general, remain.

Skeptics have noted that cryptocurrencies have yet to reach widespread adoption in payments and other core areas of the financial system.

On Wednesday, Federal Reserve chair Jay Powell stated that cryptocurrencies were “vehicles for speculation.” This reflects a view that remains prevalent among policymakers around the world.

In addition, cryptocurrencies have also drawn the ire of prosecutors and regulators. They’re concerned with both cryptocurrencies’ use in money laundering as well as the risk it presents to investors given its high volatility. Then, there’s also the alarm over the environmental damage caused by bitcoin mining. (Related: Cryptocurrencies “going to ZERO,” concludes Goldman Sachs report.)

“Cryptocurrencies are, in a nutshell, a bubble, a Ponzi scheme and an environmental disaster,” said Bank of International Settlements head Agustin Carstens in 2018.

As for Coinbase, though its stock market debut marked a critical juncture for crypto markets, the company itself had to put some of its more ambitious plans on hold. The company had to cancel a sale of tokens – a type of digital asset that would have formed a class of its stock – after it struggled to find a large enough pool of brokers licensed to trade them.

At the same time, crypto had appeared to be on the verge of mainstream adoption before. This was before one high-profile setback in 2019 when the derivatives exchange Cboe pulled the plug on bitcoin futures due to a lack of investor interest.

The question now is whether Coinbase won’t suffer the same fate and if crypto is finally ready for the mainstream.

Follow Risk.news for more on the latest stock market news.

Sources include:

Bloomberg.com

CNBC.com

FT.com