In Going Public, Coinbase Will Bring Bitcoin Exchanges To The Big Leagues

In Going Public, Coinbase Will Bring Bitcoin Exchanges To The Big Leagues

Coinbase’s recent S1 filing has been hailed as something of a watershed moment.

What might be most incredible is that private markets value the company at about $100 billion, putting it ahead of the most-established traditional exchanges. And that’s by quite a margin! If we look at traditional exchanges, one of the more robust has been Hong Kong’s HKEX, which was strong enough to attempt a takeover of the London Stock Exchange last year. As of now, it’s market cap comes to a mere 75 percent of Coinbase’s pre-IPO price.

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Even cryptocurrency enthusiasts may be wondering if that number is a little overstated. The short answer is, that like much else in the digital asset and fintech space, this valuation is largely based on forward-looking factors. However, when looking at the S1 filing, the numbers aren’t actually that unrealistic.

Coinbase’s 2020 revenue of $1.3 billion puts it ahead of Nasdaq’s “Market Services” segment and at a half of HKEX. What’s eye-popping is the 240 percent growth in revenue year-over-year. Even with continued liberalization of Chinese Markets, HKEX is unlikely to improve exponentially on it’s already-impressive 18 percent year-over-year growth, for instance. 

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And that is almost certainly what’s driving the bull case for Coinbase. Cryptocurrency is still a nascent market, driven in large part by retail customers. In terms of margins, Coinbase doesn’t fare too badly either with its net-income margin of roughly 33 percent — far below HKEX’s 77 percent margin but quite reasonable for what’s effectively an early-stage company.

The bears do have a lot going for them also. And I won’t get into all the risk factors as the challenges of regulatory oversight and the volatile nature of cryptocurrency itself are well-understood. But what’s interesting is the imminent challenge to centralized exchanges from within the cryptocurrency space.

UniSwap is one such contender. It’s a decentralized exchange that operates with no central authority. Indeed many decentralized finance (DeFI) exchanges like UniSwap and Kyber, as well as banking and lending protocols like AAVE, can potentially herald a paradigm shift for the entire concept of an “exchange” as we know it. Uniswap’s trading volumes have grown exponentially and has already facilitated $100 billion of cryptocurrency in its life-to-date (much of it in 2020). 

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Time will tell whether or not Coinbase lives up to its pre-public valuation hype, but it appears there is a very realistic chance that this is the beginning in a larger trend of cryptocurrency exchanges catching up to or even supplanting traditional ones.

This is a guest post by Muneeb Jan. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Published at Tue, 23 Mar 2021 22:17:47 +0000

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