What the Coinbase IPO Means for Cryptocurrencies

April 29, 2021

Alan Wink, Managing Director of EisnerAmper’s Capital Markets, discusses the groundbreaking Coinbase public offering. He covers valuation, volatility and institutional investors. Alan also gives us a peak at his Q1 2021 venture capital report.


Transcript

Dave Plaskow:

Hello, and welcome to the EisnerAmper podcast series. Today we're taking a look at Coinbase's groundbreaking cryptocurrency, IPO. I'm your host, Dave Plaskow, and with us is Alan Wink, managing director of EisnerAmper's Capital Markets.

Alan, good to speak with you.

Alan Wink:

Same here Dave, I hope all is well with you and your family.

DP:

Thanks. You too. So Coinbase, the first cryptocurrency to go public. Just how big a deal is this IPO?

AW:

It's a huge deal. You've got to remember, Coinbase is probably the first company that's sort of the go-between between the capital markets and cryptocurrencies. It's the largest Bitcoin exchange in the U.S. and it's really the first crypto-focused company to go public. It has a platform that's allowing, 43 million retail users, 7,000 institutional and 115,000 ecosystem partners in over a 100 companies to trade Bitcoin or to trade cryptocurrencies. It really is a huge, huge deal.

DP:

Okay. Now, why do you think Coinbase didn't use a SPAC, which seems to be the fundraising route du jour?

AW:

It's an interesting question, Dave, and I think a lot of people confuse how Coinbase went public as an IPO. It really wasn't an IPO. They really had a direct listing of stock and it is a significant difference.

An IPO usually is a way that a company raises capital. On the other hand, a direct listing allows some of the early investors in a company to create liquidity since they're selling that stock directly to the public. So when you look at Coinbase, they went public at a price of $381 a share and created almost a $100 billion valuation for the company. So the real beauty of this is that rather than investment bankers determining the price of the stock, the investors actually determine the price of the stock. And because Coinbase is now public, it makes raising capital in the future significantly easier. And, as you can expect, it's much cheaper to do a direct listing of shares rather than an IPO. So literally tens of millions of dollars of fees were saved as a result of doing the direct listing.

DP:

Got it. So you just referenced the Coinbase valuation at one point topped a $100 billion with a “b.” Have we set an unrealistic bar here for the future? Are we on our way to a crypto bubble?

AW:

Once again, another good question. And I think most people will say, most investors will say that Coinbase is probably a very good company, but it might not be a very good stock to purchase at these prices. The company went public at a $381 a share on the first day of trading the stock. The market cap of the company exceeded a $100 billion. Certainly a lot of euphoria in that also the fact that Coinbase went public certainly influenced the price of cryptocurrencies around the world. In terms of a frame of reference; crypto Coinbase, which is a company that's five or six years old, today has a market cap of about $60 billion. You can compare that NASDAQ only has a market cap of about $26 billion, the Intercontinental Exchange, which owns the New York Stock Exchange has a market cap, probably in the $65-$70 billion market range, probably on par with Coinbase, but it's amazing that a company so young is trading almost three times at what the NASDAQ is trading at.

DP:

We have seen a little bit of slippage across all of the cryptocurrencies in the last few days, not a lot, but some. How concerned are you about the volatility here in the sector?

AW:

Well, it's always been an extremely volatile asset and you're absolutely right. There has been some pullback in the price over the last couple of weeks, but to be quite honest with you, a cryptocurrency like Bitcoin has doubled in value in the last three and a half months since the beginning of 2021. So there is certainly some volatility there. It's true institutional investors have kind of slowed down their purchases of cryptocurrencies over the last couple of weeks; maybe the reason for that is they're waiting to buy shares in Coinbase. So rather than buying the currencies, they want to buy the company.

DP:

Given all that, we just talked about, the pros and the cons, is this the point where institutional crypto investors are going to be all in, or are they going to still sit on the sidelines a little bit and wait and see? How do you see that playing out?

AW:

There's been a very large amount of institutional investment in cryptocurrencies. It's part of their diversification strategy. I think everyone's seeing the incredible uptick in price and wants to participate. Nobody wants that FOMO or fear of missing out, but I think people are watching it cautiously. The Treasury is certainly watching it cautiously. I mean we've heard, the Treasury has talked about taking action against certain institutions involved with cryptocurrencies over money laundering issues. So I think you have to keep an eye on both the price and some of the actions that the Treasury might be taking in the future.

DP:

Now, switching gears a little bit. I see you've just published your quarter one 2021 venture capital report. What are some key takeaways?

AW:

I hate to keep using the word frothy, but this venture capital market is incredibly frothy right now. We had an incredible year in 2020 in terms of venture capital investment, about $156 billion was invested by VC funds here in the United States. That actually was a record last year. To put that in perspective, so far in Q1 of 2021, $69 billion was already invested. So we're very close, we could break a record in terms of VC investment in Q3 this year if this continues to hold up. As you can expect as a result of the pandemic, life sciences and the tech space are garnering most of the VC dollars that are being invested. We continue to see a proliferation of large deals or mega deals, deals over a $100 million. In the first quarter, over 60% of the dollars that were invested, were invested in mega deals.

So we're seeing high levels of investment. And on the other side, we're also seeing a high level of exit activity. We saw $118 billion of VC exits in the first quarter of 2021. SPACs played a large role in that. SPACs raised another $83 billion in Q1, which was more than they raised in all of 2020. SPACs also accounted for 75% of all the IPO activity in the first quarter of the year. So we're seeing good levels of investment, good levels of exits and fundraising is also at an extremely high level, $33 billion of new venture capital was raised in Q1. This could be the first year ever that the venture capital industry has recorded fundraising of greater than a $100 billion. So based upon everything I've seen, I don't see the VC industry slowing down in 2021. It's amazing this is all going on in spite of the pandemic, it's really an amazing fact.

DP:

That's true, no doubt. Well, and as always, thanks for the knowledge.

AW:

I appreciate Dave, good spending time with you.

DP:

And thank you for listening to the EisnerAmper podcast series, visit Eisneramper.com for more information on this and a host of other topics and join us for our next EisnerAmper podcast when we get down to business.

Transcribed by Rev.com

About Alan Wink

Mr. Wink assists clients with capital budgeting, capital structuring and capital sourcing. He has worked with many tech and life science companies on developing the appropriate capital structure for their position in the business life cycle.

About David Plaskow

David Plaskow is a Senior Manager focusing on research, writing, editing and managing content for both internal and external firm communications.

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