Coinbase’s direct listing on the NASDAQ stock exchange in April 2021 came like a long awaited blockbuster movie. The highly anticipated COIN comes to market as surging crypto interest creeps into traditional finance, validating both the crypto industry and its fans. Alas, the first crypto company publicly listed on a major exchange saw tepid response in its share price and has slumped over 30 percent since.
Such lackadaisical performance leads pundits to question whether the direct listing was the right move.
Could have been
To glean insight, its direct rival Binance chose to mint its own token (BNB) and saw a far more spectacular performance with a market capitalization that doubled over the last two months. It is entirely plausible that Coinbase could have obtained a much higher valuation if it had opted for the digital instead of the traditional route.
COIN vs S&P 500: A disappointing underperformance
Since listing on NASDAQ, COIN has even underperformed the traditional benchmarks. The S&P 500, a widely used gauge, is largely unchanged over the same period, losing less than 1% since Coinbase rolled out the red carpet to its debut. Coinbase’s valuation is currently at around US$55 billion on NASDAQ, which pales significantly in comparison to its pre-listing valuation of around US$110 billion, when they were trading on the NASDAQ private market.
Before they were listed, investors wanting exposure to Coinbase could trade futures contracts on crypto-derivatives exchange FTX via swaps. At its peak, these swaps traded at a high of $643 per share, translating into a market capitalization of US$128 billion, numbers that now seem lofty in comparison to its current valuation.
Retail investor behavior
In spite of increasing institutional interest into crypto, digital exchanges including Coinbase still derive a large user base from the retail segment, people who look to sign up and trade in a way that is most direct, efficient and hassle-free. The 56 million retail users of Coinbase maintain accounts on the exchange interface itself, but they would have to instead sign up for a brokerage account such as their competitor Robinhood in order to be able to trade Coinbase shares on NASDAQ. The message from Coinbase is clear: ‘We can’t provide you with the ease of a platform to trade COIN so you need to go through our competitor’.
Not only is this a total volte-face from Coinbase’s approach of “working smarter, not harder”, but it also creates extra friction for its own users who wish to invest in Coinbase equity, creating a drastically different customer experience that lessens convenience. Users are ultimately deterred from wanting to buy Coinbase shares.
Binance has manicured the grass to be greener on their side; BNB token coins allow stakeholders a direct, efficient and hassle free mechanism to trade on Binance’s own exchange. This offers a strong sense of alignment - it is hardly rocket science that the natural buyers of your shares would be your own users.
The future of finance
Though crypto market capitalisation has skyrocketed past the trillion dollar mark, a digital exchange decision to list on a traditional exchange may betray a fundamental lack of confidence in their business model. Coinbase’s valuation may have been worth more than double its current market cap on NASDAQ if it had minted its own token. We know that if it had gone the digital route, its valuation could have been in line with its pre-listing valuation around US$110-120 billion. What if Coinbase had combined the features of the Binance token with its own blockchain-native issuance of equity? Indeed, this is possible, as a ‘hybrid’ utility-equity token could have been minted. This is a token that offers all of the rights contained in a ‘real’ share as well as access to extra services from the company - providing the best of both worlds.
A gilt-edged opportunity went begging.
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