Coinbase Global is going public through a direct listing Wednesday, becoming the first cryptocurrency exchange on the stock market.
The timing isn’t coincidental: Bitcoin has doubled in value this year, surging to a record high above $62,000, as cryptocurrencies have become more widely embraced by mainstream investors. For those adverse to the volatility and risk in the crypto sector, Coinbase says its direct listing will let investors buy into cryptocurrencies without having to own any individual digital currencies.
First Move’s Julia Chatterley spoke to Coinbase Global’s Chief Financial Officer, Alesia Haas, this week ahead of the company’s IPO.
Do you see yourselves as that bridge between traditional finance, traditional investing and a brewing excitement and growth in interest in the crypto world?
Haas: We definitely view ourselves as the on-ramp to the crypto economy and providing education to millions of users with the ability for them to learn and then engage with crypto. That can be through buying, selling, and now increasingly, spending and earning and receiving and borrowing and lending and using crypto in new and exciting ways. So, yes, we do consider ourselves that bridge between fiat and crypto. And we’re excited for this continued evolution of bringing people into the crypto economy.
There’s chatter already in the market that your valuation could be as much as $100 billion — even more than that. Is that possible?
Haas: So it’s interesting, we chose a direct listing in part because a direct listing really spoke to the ethos of crypto. It’s an open financial system where we can bring all types of investors, retail investors, institutions to the opening order book. And the price discovery will happen when all those investors participate in that opening order book. We believe that’s going to be the most robust function to enable this price discovery, but quite candidly, we’re the first of our kind, we’re the first crypto company. And so it’s going to be important to have all of those voices help set the valuation for Coinbase. And we will all learn what that will be tomorrow. Unfortunately, I can’t speculate on what our valuation will be and we will see what it is along with the market.
You have some whopping great margins at this moment. Do you expect to see those depleted as more players enter the space?
Haas: Today we believe that our fees represent the product that we’re selling. Those are transparent fees that we share with our customers. There’s no other embedded or hidden fees. We’re not monetizing through any back-end mechanisms. And over the long term, it is very possible that we start to see fee compression as we see that in all other asset classes over time. And as things become more available, through more competition, through more commoditization, I do believe it’s typically natural to see compression, but we don’t believe that’s a near-term phenomenon.
The regulatory outlook for this space, which clearly differs all around the world, is one potential risk, I think, for investors. Also security: Is their investment safe on the platform or is it at risk of hacking? Can you explain your view on both of those things?
Haas: Coinbase has been embracing regulation since we were founded, Brian [Armstrong] and Fred [Ehrsam] are co-founders. We proceeded to obtain licenses on a more global basis. It is core to who we are and we look to be a safe and trusted and compliant platform where our customers can engage in crypto transactions across all the jurisdictions we serve. Moving on to security, we make a tremendous amount of investment in our security on our platform. We believe it’s one of our core strengths and we are proud that we’ve never had a material loss of funds to any of our users due to a security breach or a cyber loss on our platform. It is always a risk that that occurs and the way that we protect our customers is that we hold a small percentage of the total assets on our platform in what we call a ‘hot wallet’ where the funds are at risk of a cyber attack. The overwhelming majority, at this time over 98%, of the funds that we store are what we call ‘in cold storage,’ so they are offline. They cannot be accessed through a cyber attack. For the funds that are in the hot wallet, we do insure those. We do have multiple layers of protection that we provide to our customers.
OK, fast forward five years. Where is Coinbase?
Haas: Coinbase will continue to grow to become hopefully the primary financial account in the crypto economy for millions and millions of users. Those are retail users, businesses, institutions that we just spoke about and many more who want to transact and use tools in our portfolio of products. We are looking to be able to be the way that people learn and engage in all forms of crypto and all types of crypto assets on our platform across the world.
And to those that say Coinbase is the epitome of a ‘meme stock’ that trades without regard to the fundamentals. Coinbase’s response is?
Haas: We are a long term investment. As we shared on our earnings call and in our perspectives: this is a volatile industry. It is also very early days. We believe we have a huge long term growth opportunity ahead of us. And we believe that we will be able to grow users on our platform, the assets, the number of products in our revenues over the long term. However, it could be bumpy in the short term. And so we’re looking for investors who are believing in the growth of the crypto economy and are looking for the opportunity to invest in Coinbase and take that journey with us.
So buckle up?
Haas: Well said.