TL;DR Breakdown
- Coinbase is going public and currently facing criticism.
- Commentators have dismissed the stock of the company.
- Coinbase could allow traditional investors indirectly invest in the crypto space through shares.
It is no longer news that Coinbase wants to go public. While some members of the crypto community have frowned at this development because it does not follow the industry’s primary trends, it could be a very attractive way for those without crypto assets to profit from the industry. In short, some have argued in favour of the crypto exchange firm saying that if its stock could be profitable, then they would be buying.
In all honesty, those who have dismissed the company’s stocks are only towing the old path where the potentials of a business are ruled out without a tangible reason. Bitcoin, for example, has grown despite all of the mud thrown at it. Tesla is another example of a company that has grown despite the opposing views commentators have held about it.
We have seen Bitcoin reach an all-time high of over $40,000 despite being called a bubble, a Ponzi scheme and with some going as far as advising investors against investing in the asset. The asset has recorded a growth that is over 300% in the last one year when other “viable” assets have performed poorly within the same period. This is precisely what is panning out with Coinbase, as many commentators already have their knives out against the crypto exchange firm.
In this article, we look to help our readers decide if they should be buying Coinbase stocks or not.
Coinbase? Who are they?
Coinbase is a crypto exchange firm founded in 2012 by two individuals of diverse backgrounds, Fred Ehrsam and Brian Armstrong. Armstrong is a software engineer who once worked with Airbnb while Ehrsam worked as a trader with Goldman Sachs. Together, they developed a sort of “digital” bank for all crypto assets, and the firm has gone on to become one of the leading crypto exchange firms in the world.
One advantage the firm holds over its competitors is its user-friendly interface that was very different from others. In previous times, a limited investor would find it difficult to use the platform; it has improved its workings to allow its users to open virtual wallets that can be used to buy and store coins. However, the firm has also been facing certain degrees of “connectivity” challenges lately, which it has attempted to combat with the acquisition of firms that can further help its cause.
Currently, the firm is undoubtedly the most prominent crypto exchange firm in the United States and one of the largest trading platforms in the world. The crypto exchange holds a staggering $40 billion in digital assets under management (AUM) for just Bitcoin and Ethereum deposits. When other crypto assets are taken into consideration, the number goes as high as $90 billion. And it has one of the broadest customer bases in the world with over 40 million users.
Controversies trailing Coinbase IPO
Immediately Coinbase announced that it had filed with SEC for a public offering, the announcement had raised some eyebrows among crypto enthusiasts and sceptics who feel that the firm’s entrance into the public was not necessary.
The announcement also raised some salient issues about how the firm would operate in its newfound work environment. Some of these issues are discussed below:
Regulations
The first issue that is bound to pop up would be regulatory issues. The SEC is bound to have its hand full as other exchanges might contemplate going public depending on the level of scrutiny and regulations the body exerts on Coinbase. This could prove very challenging for the body as they face an uphill task of getting it right.
Still, on the regulations, the crypto industry generally detests regulatory bodies’ interference into its affairs. How the crypto exchange firm would battle this increased level of regulations and scrutiny from the SEC would make for an important lesson for other exchanges. The firm has had no issue per se with the authorities on regulatory matters —It had submitted its users’ information to the authorities in 2018.
Another issue that might come up with regulation is the crypto custodian firm’s history with outages. The firm has had complaints filed against it about these frequent outages that tend to happen when there is a significant market movement; a challenge that could make the regulatory body reluctant to authorize it.
However, one market leader, Flori Marquez of BlockFi, believes that Coinbase IPO listing would be positive in regulating the crypto industry. Marquez says that Coinbase would most likely be in active communication with the regulatory body on how more consumers can invest in the crypto market, which bodes well for the overall industry.
More liable to crypto assets it supports
When the crypto custodian announced that it would be supporting trades for XRP in 2019, little did it know that the token could someday drag it into litigation against its customers.
But that is the current reality of Coinbase as the firm has been sued by a customer who alleges that the firm should have known that the asset was a security and shouldn’t have enabled support for it on its platform. While this might be one aggrieved customer, the exchange should expect an outpour of cases as it becomes more liable for every other crypto asset it would support.
Investor’s Education
While it appears that the crypto industry has been with us since forever, the truth is that the industry is just slightly over a decade old. However, during that decade, it had made massive strides.
Regardless of this, many still do not know or understand how cryptocurrencies and the industry operates. Due to this lack of understanding, the United Kingdom’s Financial Conduct Authority (FCA) warned consumers against investing in the crypto industry.
For this reason, Coinbase faces a daunting task of educating both retail investors and institutional investors about the general crypto industry. Or would it downplay its crypto affiliation and just label itself as a financial service provider to these would-be investors?
Should I buy Coinbase stocks in light of these challenges?
Honestly, an investor looking at the bull run that the crypto industry has been on in recent times would be very difficult to convince not to acquire Coinbase Stocks. The stock holds significant promise that puts it in a powerful position to stir traditional investors’ interest in the crypto niche. Investors who might, hitherto, be reluctant to invest in the crypto space might indirectly do so by purchasing shares in Coinbase.
While this is a long shot, it only means that Coinbase would indirectly lead to a broader adoption of cryptocurrency. Though currently, the crypto industry has already witnessed institutional investors’ entrance like that of Grayscale Investment, MicroStrategy and a host of others who pushed the bull run of Bitcoin into the early period of this year. We are also beginning to witness the same with Ethereum as a Coinbase report made it known that the asset was starting to witness these major investors’ entrance into the field.
The report also credited these investors for playing a pivotal role in driving the asset’s price into a new all-time high. This means that investors in the crypto custodian firm would enjoy as many benefits that might come with hodling and owning a digital asset.
In essence, regardless of the challenges posed by the authorities or comments made by analysts, buying a Coinbase stock could be one of the best financial decisions an investor might make during this year. However, it is advisable that an interested investor takes every necessary precaution and studies the market properly before investing.
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