Coinbase IPO Launch on Wednesday Confirms Crypto's Arrival as Asset Class

The planned launch of Coinbase's IPO this week coincides with Bitcoin's continued climb to what could be a new high and Wall Street's growing acceptance of the cryptocurrency as an asset class.

The cryptocurrency trading platform is scheduled to go public Wednesday via a direct listing on Nasdaq. Coinbase is a "unicorn"—a privately held company valued at $1 billion or more—and profits make it golden.

Gil Luria, an analyst at D.A. Davidson, said the deal is speculative, but could be an "Amazon moment" for investors.

Wall Street
Coinbase, the cryptocurrency trading platform, is scheduled to go public Wednesday via a direct listing on Nasdaq. It is a "unicorn"—a privately held company valued at $1 billion or more—and profits make it golden. Getty

"The well-managed standard bearer represents a uniquely diversified play on the growth of crypto," the Portland, Oregon-based analyst said in a research note.

"We believe that crypto assets and the distributed technology they represent will become the foundation for a more efficient future financial system that reduces the number of intermediaries for a large range of transactions," the note read.

In private market transactions, San Francisco-based Coinbase shares recently traded at a price that would value the company at about $67.6 billion, the company said in a regulatory filing.

First and foremost, an IPO is a bet on a new company's future growth.

In 2020, Coinbase reported revenue of $1.3 billion compared with $534 million in 2019. It reported net income of $322.3 million last year.

During the dot-com boom of the 1990s, many new companies went public with no earnings or a quarter or two of miniscule profits. This created great risk for investors.

Coinbase has about 43 million customers in about 100 countries, giving it a strong user base, and if interest in cryptocurrencies remains strong, if offers the prospect of steady growth.

The company seeks to make cryptocurrency-based financial services available to anyone with a smartphone. That's a potential market of about 3.5 billion people.

But digital currencies issued by the central banks of nations around the world may dim interest in cryptocurrencies.

If the past is a guide, the company's current earnings may be needed in the future to ride out Bitcoin's wild price swings. In 2019, a downbeat year for Bitcoin, the company reported a loss of about $30 million.

Bitcoin ATM NYC
NEW YORK, NEW YORK - FEBRUARY 08: A bitcoin ATM is seen inside the Big Apple Tobacco Shop on February 08, 2021 in New York City. Michael M. Santiago/Getty Images

In early 2017, Bitcoin changed hands at less than $1,000. By December of that year, it had climbed to about $20,000. But by February 2018, the price had fallen to about $7,000.

The number of Bitcoins is limited to 21 million. As long as institutional demand remains strong, many analysts believe this will ease erratic price swings, the hallmark of an undeveloped market in an uncertain asset.

Coinbase allows retail customers to buy and sell Bitcoin and provides a secure place to hold the cryptocurrency – a "digital wallet."

Major Wall Street firms typically hold Bitcoins in a custodial account at a major institution such as Bank of New York Mellon, the nation's oldest bank. Coinbase charges fees to use its platform and a percentage of up to 2% per transaction.

In most IPOs, new shares are offered to investors and traded on a public exchange. The deal is underwritten by several investment banks, which earn a fee for completing the deal.

In a direct listing—sometimes called a direct public offering or direct placement— no new shares are offered. Instead, existing shares are sold and there are no underwriters involved.

A direct listing cuts cost but there is no support for the shares. If demand is strong, there is no over-allotment option, often called a greenshoe, that allows the new company to sell more shares than originally planned and raise more money.

In addition, many IPO analysts don't track direct offerings, and therefore buzz about the deal is typically lower—at least outside the currently hot Bitcoin market.

Coinbase's ticker symbol is COIN.

In early trading Monday, Bitcoin fetched $59,925.23 after briefly touching $61,219.72. The cryptocurrency is up 105.74% for the year. The record high is $61,712, CoinDesk reported.

Market Pulse

Workers at an Amazon warehouse in Alabama recently voted 71% to 29% against unionization, underscoring the declining importance of labor unions in the private sector.

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Amazon workers rejected unionizing on Friday. A person holds "Vote Union Yes!" signs during a protest in solidarity with Black Lives Matter, Stop Asian Hate and the unionization of Amazon.com, Inc. fulfillment center workers at Kelly Ingram Park on March 27 in Birmingham, Alabama. Patrick T. Fallon/AFP/Getty Images

The number of wage and salary workers belonging to a union totaled 14.3 million in 2020, down 321,000, or 2.2%, from 2019, the U.S. Bureau of Labor Statistics (BLS) reported.

But the COVID-19 pandemic led to an uptick in the union membership rate.

The overall decline in employment during the economic shutdown intended to curb spread of the coronavirus was 9.6 million, or 6.7% of the workforce, and occurred mostly among non-union workers.

"The disproportionately large decline in total wage and salary employment compared with the decline in the number of union members led to an increase in the union membership rate," the BLS said.

Statistical quirks aside, union membership in the private sector continues to decline.

In 1983, the first year when comparable data were collected, there were 17.7 million unionized workers and the membership rate was 20.1%.

The union membership rate for public-sector workers last year totaled 34.8%, or more than five times higher than the private-sector rate of 6.3%.

Gavin Newsom school reopenings
California's largest teachers union said it was "disappointed" with Governor Gavin Newsom's administration's decision to update coronavirus-related health guidelines as a school reopening bill was set to gain final approval. In the photo above, Newson speaks during a news conference after touring Barron Park Elementary School on March 2, 2021 in Palo Alto, California. Justin Sullivan/Getty Images

The highest unionization rates were among workers in protective services such as police and firefighters (33.6%), and education, training and library occupations (35.9%). Union membership rates are highest in local government.

Men continued to have a slightly higher union membership rate than women, 11% to 10.5%, BLS statistics show.

Among states, Hawaii (23.7%) and New York (22%) had the highest union membership rates, while South Carolina (2.9%) and North Carolina (3.1%) continued to have the lowest.

Among major race and ethnic groups, blacks continued to have a higher union membership rate in 2020 (12.3%) than whites (10.7%), Asians (8.9%) or Hispanics (9.8%).

Union members earned an average of $1,144 a week compared with $958 for non-union workers, the BLS said.

However, the totals don't control for differences in education, occupation or location. In general, educated workers holding white collar jobs in cities earn more than less educated blue collar workers in outlying areas.

Unionization prior to the 1930s was typically organized along craft lines. But the Depression and rearmament needed to fight World War II led to the rapid expansion of industrial unions.

Unions agreed not to strike during the war, but in 1946, there were a record number of strikes. Congress worried that unions had become too powerful and in 1947 passed the Taft-Hartley Act to reduce their power. The number of strikes declined.

The Congressional Research Service said union membership peaked in 1954 when 34.8% of all public and private U.S. wage and salary members belonged to a union.

But unions faced their biggest challenge as the U.S. economy shifted to services from production after World War II. Also, manufacturing and transportation became more efficient and needed fewer workers.

Globalization led many factory jobs to be moved to low-wage countries overseas.

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Graduate students attend a march on April 15, 2019 in St. Louis, Missouri. Graduate students from across the country demonstrated in three cities against a proposed NLRB rule change that would exempt them from the classification of employee. Washington University Graduate Workers Union, SEIU Local 1

In a 2016 Columbia University case, the National Labor Relations Board said that student teaching and research assistants at private universities are employees under the National Labor Relations Act and therefore have the right to organize a union and bargain collectively.

It's hard to see the connection between graduate students in English, art history or chemistry as the rightful heirs of the "Wobblies"—the Industrial Workers of the World formed by Eugene Debs in 1905.

Today, some ask: Are unions relevant in the digital age, especially as more employees work from home?