Coinbase’s whipsaw debut takes it past $100 billion, then back

Cryptocurrency exchange Coinbase Global Inc. soared above a $112-billion valuation in its trading debut Wednesday, then slipped back below its opening price as bitcoin fell from record highs and tech stocks declined across the board.

The massive valuation, which dwarfs that of more traditional financial companies including Intercontinental Exchange Group Inc. and Nasdaq Inc. itself, is a landmark moment for the crypto industry and for Coinbase, which was started almost a decade ago when few people had even heard of bitcoin and when many exchanges were run by amateurs from their garages and homes.

Coinbase shares closed at $328.28, down 14% from the $381 opening price on Nasdaq after earlier climbing as high as $429.54. At the closing price, the company’s valuation on a fully diluted basis is about $86 billion.

Bitcoin, which along with Ethereum made up 56% of Coinbase’s 2020 trading revenue, slipped below $62,000 after earlier hitting a record price.

The debut isn’t just a mark of success for Coinbase, which was valued at just $8 billion in its most recent funding round in 2018. It’s also a win for Nasdaq, which hosted its first direct listing after beating out the New York Stock Exchange for Coinbase’s debut. Coinbase is the biggest company to take the direct listing route to market.

Coinbase Chief Financial Officer Alesia Haas said in an interview Wednesday morning that one of the reasons that the company picked Nasdaq was because the bourse offered the ticker symbol “COIN,” which wasn’t part of the New York Stock Exchange’s pitch.

“Ultimately that they had the ticker COIN, and that was a really great ticker for us to get,” Haas said.

Nasdaq on Tuesday set a reference price of $250 a share for Coinbase’s direct listing, a number that’s a requirement for the stock to begin trading, but not a direct indicator of the company’s potential market capitalization. Every major direct listing has opened significantly above its reference price, with Roblox shares debuting at $64 each — 42% higher than the number set by the exchange.

Coinbase shares changed hands at a roughly $90-billion valuation in early March, Bloomberg News reported at the time, in what was one of the last chances for investors to trade its private stock before the company went public.

Digital Currency Group founder Barry Silbert, who has built an empire that spans the crypto world, tweeted Tuesday that his shares would definitely not be changing hands at the reference price, in an early sign that the stock was set for a pop at the open.

Direct listings are an alternative to a traditional initial public offering of stock that has only been deployed a handful of times. Until Wednesday, every company to pursue one — including Slack Technologies Inc., Palantir Technologies Inc. and most recently Roblox Corp. — listed on the New York Stock Exchange.

In addition to the ticker, Nasdaq’s ability to provide a private market for the shares, as well as services it offers such as investor relations work, were among its selling points to Coinbase, according to a person familiar with the matter.

Appropriately for a company that in May said it was committing to a “remote-first” work culture and doesn’t list a headquarters on its filing, Coinbase’s pitch meetings with Nasdaq happened virtually, the person added.

“We evaluated both NYSE and Nasdaq and ultimately felt that the Nasdaq platform was aligned with our value as a tech company,” Haas said.

In a direct listing, a company’s shares begin trading without it issuing new shares to raise capital. That avoids diluting the shares and also, unlike a traditional IPO, often allows the company’s existing investors to put their shares on the market without waiting for lockup period — typically six months — to expire.

Luring Coinbase was a win for Nasdaq, whose years-long fight for a larger share of mega listings gained traction in the last year. Half of the 10 largest U.S. IPOs, excluding blank-check companies, were on Nasdaq, according to data compiled by Bloomberg. That included the third-largest, Airbnb Inc.’s $3.8-billion IPO in December, which was the biggest listing on Nasdaq since Facebook Inc.’s $16-billion monolith in 2012.

Putting his trust in the stock exchange is Coinbase Chief Executive Brian Armstrong, who started the company with Fred Ehrsam in 2012. Unlike most rivals, Coinbase’s founders always envisioned strict regulatory compliance as a cornerstone of the operation, which has helped the exchange to grow in the U.S., where many early bitcoin traders and investors were located.

Ehrsam left the company in 2017, and is now investing in crypto start-ups. Both Armstrong and Ehrsam own huge swaths of Coinbase.

Coinbase last week said that it expects to report a first-quarter profit of $730 million to $800 million, more than double what it earned in all of 2020.

“They are going to build out a full financial services company,” said Barry Schuler, a co-founder of Coinbase investor DFJ Growth who until last year sat on the company’s board. “Like a crypto version of a Goldman Sachs or a Morgan Stanley.”

The company’s rapid growth hasn’t been without controversy, ranging from frequent outages during periods of heavy trading to new restrictions Armstrong placed on employee discussions of politics last fall. In March, Coinbase also settled with the Commodity Futures Trading Commission for $6.5 million, after the agency said the company reported inaccurate data about transactions and that a former employee engaged in improper trades.

Then there are the crypto skeptics, as well as the regulators around the world who are stepping up oversight and casting doubt on bitcoin’s usefulness as a currency.

European Central Bank executive board member Isabel Schnabel, in an interview this month with Der Spiegel, called bitcoin “a speculative asset without any recognizable fundamental value.”

A publicly traded Coinbase was unimaginable several years back when Wall Street was full of crypto bears including JPMorgan Chase & Co.’s Jamie Dimon, who once called bitcoin “a fraud.”

Dimon later said he regretted saying that. His bank as well as Goldman Sachs Group Inc. advised on Coinbase’s direct listing.

“I don’t think we sought Wall Street’s approval but we did seek to bring more transparency to crypto and to introduce crypto to more and more users,” Coinbase’s Haas said.

“Wall Street can become trader of crypto. They are going to be partners of us going forward,” she said.

Coinbase’s early investors are celebrating.

“I think Coinbase is this decade’s Microsoft, Netscape, Google or Facebook,” Garry Tan, founder and managing partner at Initialized Capital and an early-stage Coinbase investor, said in an interview with Bloomberg Television on Tuesday.

Bloomberg writer Ed Ludlow contributed to this report.