Coinbase is going places.
Wednesday, April 14th marked a historic event in the cryptocurrency world. Coinbase — a cryptocurrency exchange — became the first of its kind to become a publicly traded company.
The decision came at an opportune time as the valuation of Coinbase jumped from $1.6 billion to $90 billion in the span of 4 years. The timing of it going public is huge since it’s also around the time where many other large businesses are diving into cryptocurrency at the time.
While I’m still apprehensive about the idea of people investing in Bitcoin in particular, I’m not against the idea of investing in the root of the coin. Whether it’s showing interest in blockchain technology or investing in a company such as Coinbase.
Here is why it might be smarter to look at Coinbase and seeing it as a long-term investment.
1.It’s Widely Accessible To The General Public
Bitcoin is a limited resource in the grand scheme of things. With a market cap of 21 million coins being available for the general public to use, there is only so much that people can use to buy goods, and hold for trading purposes. If Bitcoin — let alone the rest of the cryptocurrencies — are to be our future financial system, we would need to broaden the accessibility of these coins so it’s not exclusive to a select group of people.
Right now, Bitcoin is being treated like an exclusive country club that’s allowing only a select group of people. It could certainly be reprogrammed to be more inclusive.
But it isn’t.
In the case of stocks, while there is a limited amount of stocks available, the nature of this financial instrument is different. Unlike a currency — which should be available for the entire world to have access to — a stock is more broadly available.
Even so, not everyone in the entire world wants to invest in Coinbase. But it’s inherently easier to gain these stocks and tap into the cryptocurrency world.
The way I see it is that Coinbase provides us with an opportunity to invest in crypto without really investing in it.
It theoretically expands the availability of Ethereum, Ripple, Bitcoin, Dogecoin, and many other cryptocurrencies by becoming publicly traded. And unlike those coins, it’ll be sticking to traditional rules and norms of stocks.
2. The Growth Relies On Trades Over Memes
The reason I argue that it theoretically expands the availability of coins comes down to how the company is structured. Bloomberg Wealth writer Charlie Wells states a reason to invest in Coinbase is that it’s served in a more familiar package for investors.
Ever since cryptocurrencies have surged in popularity, there has been a divide amongst investors. Many disagree with crypto valuations for all kinds of reasons just as there are some investors who have embraced crypto and are bullish in their investment strategy.
All of this is understandable when you understand that investors are looking for hard data to make decisions. One of the criticisms Sean Williams has at The Motley Fool is that there are so few (if any) ways to evaluate Bitcoin.
Bitcoin’s performance relies entirely on the global ledger that it has and even then it’s not saying much. All you can tell from that is transaction speed times, amounts, and how many coins are circulating. It’s not exactly figures that help you in determining value or utility of any coin.
This is why you see people starting #Lasereye campaigns in the hopes of keeping Bitcoin prices up. It doesn’t inspire much confidence in investors when something like this — or that businesses are investing in the coin — are the only clear reasons for investing.
Yes, there are certainly other perks to it as supporters would argue (decentralized currency, faster transactions speeds, total anonymity,etc.), but those don’t technically translate into compelling reasons to invest in crypto.
All of this changes with Coinbase.
Coinbase has to provide income statements, balance sheets, and detailed records about their business so investors can make sound decisions. In other words it needs to provide solid evidence for why it should be valued at the price that it’s been given.
And since Coinbase is a company that deals with cryptocurrencies in general, it’s clear that investors can invest in crypto without doing so. Furthermore, they’re delivered in the same familiar package that investors like to see.
Teddy Fusaro, president of San Francisco-based Bitwise Asset Management says so too:
“A lot of investors have been hesitant to invest in Bitcoin or crypto because they can’t do it in the same way they’re used to. This will allow for investors to buy or sell in a brokerage account or retirement account, and this provides a different avenue for getting that exposure.”
3.Coinbase Provides More Stability Since It Has Five Revenue Streams
Another thing that can inspire confidence in investing in Coinbase is the fact that Coinbase earns money through a variety of ways. A cryptocurrency can only be leveraged as long as the price is greater than what you bought it for. When investing in a cryptocurrency you’re relying on this aspect which can be risky. You’re essentially gambling as you have a 50/50 shot of it going up or down.
While stocks are technically follow that same principle, a company’s performance can move the scales. It’s not just relying on external forces — which can happen unpredictably — to influence its price.
Coinbase is able to grow thanks to two main sources:
- Their margin fee structure where they charge 0.50% for every crypto transaction.
- And a commission fee that is charged on top of the transactions made. This particular fee is based on where you are and how much is being exchanged.
From that alone, it makes sense that Coinbase’s prosperity is linked so closely to Bitcoin. As long as Bitcoin is prosperous, Coinbase will continue to generate massive profits as well.
But where Coinbase has a leg up is the fact they have other lines of business that can earn revenue. So even if Bitcoin prices drop, they could still flourish in those circumstances. Their other services include:
- Their Coinbase Commerce system — this is basically PayPal for crypto, allowing them to potential charge businesses small fees as well for integrating the system.
- A Coinbase Card — a crypto version of a Visa debit card and an app that allows you to spend cryptocurrencies in the real world. It converts crypto into US dollars when it’s used.
- USDC — Also called USD Coin, it’s a coin built on the Ethereum platform and is directly tied to the US dollar. So 1 USDC will always be worth $1 USD.
These sorts of services can be branched off for Coinbase to leverage in various ways. What this means is that Coinbase doesn’t have to be constantly reliant on Bitcoin performing well in order to prosper.
4.Bitcoin Will Drop In Price If Crypto Gets Adopted As The New Financial System
I consider those other services that Coinbase provides as instrumental to Coinbase’s success because Bitcoin is eventually going to drop in price.
This isn’t just me saying things, Forbes writer Clem Chambers also believes the price will drop, writing:
Bitcoin is the leader and definer of this cycle and its performance will direct the performance of all the other cryptos. Musk’s bitcoin tweets are in the data for all to see.
Whether you are a BTC $1 million by Christmas prophet or a doubter expecting an imminent correction, this is a chart to watch because the price of bitcoin and ethereum is FOMO-driven and when that impulse passes, that will be the top for this cycle. FOMO, and we are now seeing corporate FOMO, is a powerful force but it is a acute one not a chronic one, so crypto will not ride the FOMO wave indefinitely.
It also makes sense from an economic stand point.
If crypto is to be the way of the future for money, the valuation of each coin will need to shift dramatically. Unless everyone is fine with larger wealth gaps than we have now — a problem that I presume crypto was created to try and remedy amongst other things.
There is also the fact that cryptocurrencies would need to expand their market cap, providing a much higher supply of available coins for people. This inherently drops the price as the scarcity and the demand to have these coins would be satisfied and price would begin to stabilize as a result.
These kinds of scenarios though don’t happen at all with stocks. Yes, stocks are still exclusive to a group of people who can afford to trade in the first place.
However, they abide by different economic rules. They are tied to a businesses performance and have always been this exclusive aspect. Though it does have the structure now to be tapped into readily via various funds.
It creates a scenario where whenever Bitcoin prices eventually hit normality, the same can’t be said about Coinbase. If Bitcoin, and other currencies become more widely available and used, the more we’ll be turning to Coinbase and other exchanges. These exchanges could theoretically become part of our future banks.
5. People Have More Control Over Coinbase’s Price And Performance
The final reason I consider Coinbase a smarter investment is that it’s controlled more by the people. In an First Move interview, Coinbase Global’s CFO, Alesia Haas mentioned this about their potential $100 billion valuation:
“So it’s interesting, we chose a direct listing in part because a direct listing really spoke to the ethos of crypto. It’s an open financial system where we can bring all types of investors, retail investors, institutions to the opening order book. And the price discovery will happen when all those investors participate in that opening order book.”
What this tells me is that Coinbase isn’t going to try and inflate the price or manipulate it. It’s willing to be part of the existing financial system that we’ve established.
The interview even mentioned the fact both Brian Armstrong and Fred Ehrsam embraced regulation since they were founded. They considered being regulated as a core of who they are and what the company represents.
These are all great values to have in an industry where regulation has been a heated topic in the crypto world. After all Bitcoin was created as an alternative financial system . A way to get back at the flawed fiat currency system that we have right now.
But what started out as something so small, it’s grown massive and has shown it’s own flaws. A prominent one being that a single individual could effectively influence the performance and valuation of a coin with a couple of tweets.
That doesn’t inspire much confidence. Particularly when it comes from a man who has been in legal hot water before for tampering with prices amongst other things.
To know that Coinbase isn’t disrespecting their customer base and is being humble about it means that Coinbases stock price will more accurately represent what the collective group desire to evaluate it at and influence it accordingly.
We need companies like Coinbase to be at the forefront of the crypto movement. A company that isn’t trying to reinvent the entire wheel but rather build upon that existing system.
And by seeing Coinbase making this move to be in the public, it could very well encourage Coinbase’s competitors to work their way up to being publicly traded as well. Nevertheless, it’s one small step towards making crypto an eventual reality.
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