The markets are lofty, and the queue of companies filing to go public is getting longer.
The excitement over bitcoin — where the price may be headed up as more companies add the bellwether digital holding to their balance sheets and where retail use cases may gain traction (as anticipated by companies like PayPal) — is leading some crypto players to come to market, too.
To that end, Coinbase filed its S-1 with the Securities and Exchange Commission (SEC), a critical step in pursuing its direct listing on U.S. stock exchanges.
The filing reveals some of the tailwinds of being a facilitator (of sorts) for the ecosystem’s growth — and some of the risks, too.
Lifetime trading value across the platform has been $456 billion, said the company, and current assets held on the platform stand at $90 billion.
Monthly transacting users, according to the filing, were 2.8 million, up from 1 million in 2019; with 43 million verified users in all, up from 32 million last year. Within the actual trading population, Coinbase wrote that its platform includes 43 million retail users, 7,000 institutions, and 115,000 ecosystem partners in over 100 countries.
The Financials
Drilling into the financials, we see that the numbers give a sense of the uptake in crypto trading, where, of course, bitcoin and other names have seen wild price swings, and an increasing volume of transactions. In 2019, the company said, its top line was $482.9 million; that metric soared to $1.1 billion in transaction-related revenue last year.
And here’s a bit of an anomaly when it comes to high-growth companies filing to go public — especially those in the crypto space.
The firm is actually turning a profit. The operating loss was $45.4 million in 2019, while the operating profit was nearly $409 million in 2020.
The Risks
As for the risks: all companies are required in filings such as these (with the SEC) to disclose what events may be impactful (in a negative way) to the business. In Coinbase’s case, the company states that:
“Security issues, bugs, and software errors have been identified with many crypto assets and their underlying blockchain networks, some of which have been exploited by malicious actors. There are also inherent security weaknesses in some crypto assets, such as when creators of certain crypto networks use procedures that could allow hackers to counterfeit tokens,” the filing notes. Against that backdrop, if a hacker gains access to the computing power on a crypto network, as has happened in the past, it can manipulate transactions, and (we note not surprisingly), financial losses could result, and damage the network’s security, reputation … and ultimately, value. There’s also risk tied to the regulatory landscape, said the filing: “The cryptoeconomy is novel and has little to no access to policymakers or lobbying organizations, which may harm our ability to effectively react to proposed legislation and regulation of crypto assets or crypto asset platforms adverse to our business,” according to Coinbase.
Coinbase notes, separately from the filing, that it has proverbial “skin in the game,” when it comes to bitcoin. In a blog post this week, the company said that it has traditionally held, and still holds, bitcoin and other crypto assets on its balance sheet (the amount and value is unspecified). Balance sheet and asset values, of course, can fluctuate wildly with the prices of cryptos themselves. Valuing companies on metrics that be fluid — to put it mildly — can reveal Coinbase to be an “attractive” holding one day, less so the next. Much depends on the vagaries of cryptos themselves — and the way forward will be anything but a straight line.
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