The recent addition of Coinbase to the Nasdaq stock exchange has caused quite a lot of buzz.
In one of the most highly anticipated public offerings of recent times, the result was pretty mixed.
I’m going to explain a little bit about the company and why they’re important along with giving my thoughts on if I think it’s a worthwhile investment.
What is Coinbase?
Coinbase is one of the world’s leading cryptocurrency exchanges.
Their platform allows users to buy and sell digital currencies like Bitcoin and Ethereum.
They’re normally the go-to place for people just getting started with cryptocurrency. This is because they have a really simple and easy-to-use interface. On top of that, they’ve got a stellar history when it comes to security.
When did Coinbase go public?
The top crypto exchange directly listed onto the Nasdaq on April 14. They didn’t issue any new shares, so they were able to avoid the expensive process of a traditional initial public offering (IPO).
There was already enough excitement and fanfare around the company, which meant they didn’t really need the added marketing of an IPO.
Many saw this decision as a sign of strength. A view that was only bolstered by their very respectable first-quarter earnings this year.
What are the benefits of investing in Coinbase?
People were excited about the prospect of buying these shares for a number of reasons:
- Going public helps to add more legitimacy to the cryptocurrency market and people want to be a part of that.
- By investing in Coinbase as a company rather than individual cryptocurrencies, you don’t have to worry so much about the security risks.
- Because Coinbase sells a variety of cryptos, they will do well no matter what coin ends up on top. So there’s less pressure to only invest in the winning ones.
- The cryptocurrency market has exploded and investing in Coinbase is a potential way to get involved in those gains in a more traditional way of investing.
- Being able to buy shares in Coinbase makes it much easier for a lot of investors than having to figure out how to buy cryptocurrency or fit things like Bitcoin into their portfolio.
What are the downsides of investing in Coinbase?
Although an investment in Coinbase looks very promising for some, there are also quite a few reasons to be wary:
- Owning shares in Coinbase is not the same as owning actual cryptocurrency.
- Although they are a market-leading exchange, they have a lot of competitors who may eat into their market share.
- Decentralised cryptocurrency exchanges are currently being developed and the aim of these is to get rid of exchanges like Coinbase altogether.
- The performance of Coinbase and their ability to make money relies completely on the whims of the crypto markets
- Hype will have led to a potential overvaluation of Coinbase which could see their shares go lower in value.
What is the Coinbase share price?
The original reference (recommended) price was supposed to be $250 but many believed the shares would trade much higher than this. And they did.
However, after peaking at over $400, the stock dropped a fair way and is now trading just below $300.
Some people were critical, saying that the top brass and big shareholders at Coinbase were ‘getting rid of their shares’.
These people clearly don’t quite understand what a direct listing means. The only shares available to purchase, were those that were privately held. So if no one decided to sell any of their shares, none would be available on the market.
If you were an early investor in Coinbase, it would make sense to cash out at least some of your shares. Which is what happened. It doesn’t mean these insiders have no faith in the business. It would be stupid not to take some rewards after years of hard work building the business.
The price of the shares is now closer to the original reference price. Which seems a more sensible level.
Is it worth investing in Coinbase?
Like any investment, you have to really consider any purchase.
Do keep in mind that if you already own lots of cryptocurrency, you may be overly concentrating your portfolio if you then go and buy Coinbase shares.
It’s important to try and stay diversified, so loading up on these shares may not be a good idea.
Coinbase could continue to perform really well as a business and make lots of money, but this will be dependant on the cryptocurrency market.
I personally think that in the long-term, Coinbase will do well. But I also think that there are likely to be some really great buying opportunities when the whole cryptocurrency market is suffering.
These dips are when savvy investors should be thinking about making a move. Not when there’s lots of attention and paper-handed greedy fingers all over the stock.