The stock price of the largest cryptocurrency exchange in the US slipped 8.16% to $251.85 at around 2 p.m. ET Thursday, continuing its slide for the fourth straight day. It was trading 5.50% lower to $257.98 as of 3:40 p.m. ET.
“Coinbase, from a stock perspective, has entered bear market correction territory,” David Wagner, portfolio manager and analyst at Aptus Capital Advisors, told Insider.
While Coinbase’s debut saw volatile trading through the day, the company had a valuation on a fully diluted basis of about $86 billion by the end of the session. The stock had a $250 per share reference price and opened at $381 before hitting an intraday high of $429.54, then reversing course to trade as low as $310.
Wagner added that from a fundamental standpoint, institutional investors may be worried to dip their toes into Coinbase as the stock appears to be priced at a very high multiple. He also said that the lack of a lock up period may also be a reason as this gives insiders and early investors little incentive to hold their shares.
Coinbase, the first major cryptocurrency exchange to go public, was viewed by crypto bulls as a milestone for the digital ecosystem as it looks to continue to make headway into mainstream financial markets.
Coinbase does not offer trading in cryptocurrencies that have been seeing explosive rallies in the past few days, such as dogecoin, the meme token that has seen a 13,000% gain year-to-date, or Binance Coin, the third-largest cryptocurrency with a $99 billion valuation.
“Coinbase has been in a steady decline since its debut as many cryptocurrency traders have begun betting big on altcoins and tokens on other exchanges, while some have decided to directly hold their cryptos in a wallet,” Edward Moya, senior market analyst at Oanda, told Insider.
Investing in cryptocurrencies has been synonymous with investing in bitcoin, especially for those new to the digital asset space. Bitcoin, after all, is often regarded as the first modern cryptocurrency, founded by an anonymous developer under the pseudonym Satoshi Nakamoto in 2009.
“We think bitcoin had the first-mover advantage,” Ian Balina told Insider. Balina is the founder and CEO of Token Metrics, a data-driven investment research platform for cryptocurrencies.
Ether comes in at a close second. The global and open-source platform for decentralized applications that runs on the ethereum blockchain, is the runner-up to bitcoin with a valuation of $318 billion. Many analysts predict it will surpass the king of cryptocurrencies down the road, citing ether’s ability in storing computer codes that power contracts and applications.
Beyond these two, there is a wealth of crypto assets in the nascent space all with different utilities.
“We’re thrilled about the growing adoption of crypto beyond bitcoin,” Greg King, CEO of Osprey Funds, a crypto asset manager that launched Osprey Bitcoin Trust, told Insider. “Investor and market appetite continues to grow for funds providing access to some of the most exciting coins and tokens.”
While cryptocurrencies are difficult to separate into neat and comparable categories, London-based fintech entrepreneur Viktor Prokopenya said the underlying popularity metrics can be borrowed from more traditional asset analysis. He named market capitalization, price volatility, and momentum as examples.
“I believe we will see an increasing disregard for traditional portfolio theory and a reduction in diversification by many retail investors,” he told Insider. “Of course, this could work out for the better but conventional prudence is advised.”
Insider, with the help of experts, lists here the five most common types of crypto uses with 15 examples of coins from across the space.
A stablecoin is a type of cryptocurrency that is backed by a reserve, which could be a cryptocurrency, a fiat currency, or a commodity. For instance, tether is pegged to the US dollar. USD coin-created by Coinbase and Circle-and dai are also both pegged to the American currency.
3. Proof of Stake
This is a mechanism that regulates the process of transactions between users, ensuring that these are verified and added to a blockchain’s public ledger. PoS was born out of another popular algorithm, Proof of Work. Both have the same goal of reaching consensus in the blockchain, Binance Academy explained, and only differ in the process.
Examples of cryptocurrencies that use PoS are ether (decentralized applications), cardano (academic research), and solana (blockchain applications).
Also known as DeFi, this is an umbrella term for various applications that use public blockchains and crypto assets to disrupt the traditional financial sectors. DeFi is an alternative to a system that is tightly controlled and held together by decades-old infrastructure, according to a website funded by the Ethereum Foundation.
DeFi, an industry now worth over $66 billion, is a major reason for ether’s recent record-breaking week during the end of April.
Other cryptocurrencies that use DeFi applications according to Balina are: uniswap, a decentralized exchange for trading ethereum-based tokens via an automated order book; chainlink, a decentralized oracles network for bringing off-chain data onto the blockchain; and aave, a decentralized lending platform.
“In the last few years, we have seen DeFi also take up a significant spot within any listing category,” Ben Weiss, CEO of bitcoin ATM operator CoinFlip, told Insider – adding that many factors remain to be seen after the London upgrade in June.
Weiss continued: “I would expect the DeFi space to grow as the momentum of both DeFi usage as well as innovation is growing in the billions of dollars every other day. Decentralized market makers like uniswap and pancakeswap changed what it means to be liquid and crypto accessibility in general.”
5 . Non-Fungible Tokens
NFTs are unique digital assets secured on a blockchain supported by ethereum. Each NFT has its own signature, which can be verified in the public ledger and cannot be duplicated. When people buy NFTs, they gain the rights to the unique token on the blockchain, and not the artworks, collectibles, or tweets linked to the NFTs themselves.
Many of these are built on ether, Osprey said, but flow, tezos, and algorand also support NFTs.
“The potential applications of NFT technology are virtually endless,” he added. Other examples are theta network (video streaming blockchain) and chiliz (sports industry).
Coinbase slid to a record low Friday morning, extending losses for a fifth day in a row amid a plunge in bitcoin’s price.
The cryptocurrency exchange fell 3.87% to as low as $282.07, about a 14% drop from the price on the close of its first day of trading on public markets last week.
Meanwhile, Bitcoin slid below $50,000 on Friday, and simultaneous drops in other digital currencies erased $260 billion off the total value of the cryptocurrency market.
Coinbase’s stock is heavily tied to bitcoin’s price and a “perfect storm” of recent news is likely dragging down both the cryptocurrency and the exchange, said Dan Dolev, Mizuho Securities Senior Analyst, FinTech Equity Research.
The analyst noted that President Biden’s plan for the US to achieve net-zero emissions in the next few decades is likely weighing on bitcoin’s price given the environmental concerns with mining the coin. And, more countries are tightening regulation, including Turkey’s central bank, which is banning the use of cryptocurrencies.
Dolev and Mizuho Associate Ryan Coyne initiated coverage of Coinbase on Wednesday with a price target of $285 and a “neutral rating.”
Dolev told Insider Friday morning that he didn’t anticipate the stock to slide near his price target so quickly. When he initiated coverage on Wednesday, Coinbase was hovering around $320 a share.
Over 80% of Coinbase’s total revenue is reliant on retail transaction fees, and that could pose a risk for Coinbase down the road if other competitors like PayPal and Cash App, whose profits rely less on transaction fees, move to zero-commission trading, Dolev and Coyne said in their Coinbase note.
The analysts conducted a survey of nearly 400 individuals that use either Cash App, Venmo, PayPal, Coinbase, Robinhood, or Chime or some combination of these services in November 2020. The survey found that 55% of Bitcoin traders across Coinbase, PayPal, and Cash App consider low transaction fees as the second most important quality of crypto trading app platforms, right behind security.
In a phone call with Insider Friday morning, Dolev said: “They’ve done a great job, but that reliance on the retail trading fee is a real concern because we know how it ended when it comes to equity commissions.”
Coinbase’s $100 billion stock market debut is a watershed moment for the cryptocurrency industry that will fuel a boom in investment, crypto exchange chief executive Kris Marszalek has said.
The head of the Crypto.com exchange told Insider that the direct listing “immediately reprices all the companies and all the deals in this space.” He added that it was “extremely positive news for the whole industry.”
Yet, Marszalek said Coinbase still faced some challenges, the main being the volatility of bitcoin and other cryptocurrencies and their resulting trading revenues. Exchanges need to add new lines of business to tackle this problem, he said.
Coinbase, the US’s biggest cryptocurrency exchange, listed directly onto the Nasdaq exchange on Wednesday. Its valuation at one point shot above $100 billion but it closed at around $65 billion.
Crypto-enthusiasts and traditional investors alike were captivated. Many commentators hailed the listing as a coming-of-age moment for cryptocurrencies.
Edward Moya, senior market analyst at Oanda, said on Wednesday: “Bitcoin has survived years of skepticism and today’s Coinbase debut is an exclamation point that cryptocurrencies are here to stay.”
Marszalek’s Crypto.com exchange is a smaller but sizable rival to Coinbase, with just over 10 million users compared to Coinbase’s 56 million. He said the listing was a huge boost to the industry in general, in part because of the buzz it generated.
“It was so broadly covered… it was unavoidable,” he said. “And this will result in further allocations to the space by institutions.”
Coinbase, ticker COIN, is now one more way for people to get exposure to bitcoin and crypto, Marszalek said. “I expect a little bit of a cool-down after such a seminal event, but it’s not going to [last] long.”
But the Crypto.com boss said the most positive effects would come from the spotlight the IPO shined on the industry.
“It attracted a lot of attention and what it does is it immediately reprices all the companies and all the deals in this space, regardless of the [fundraising] stage [they’re at]. All these deals are suddenly repriced in this new reality.
“Fundamentally, it will result in more capital flowing into crypto companies. And that means more resources at their disposal to hire more engineering talent, bring in more people, innovate more, just basically drive this industry forward.”
With 96% of Coinbase’s revenue coming from transaction fees on trading, the danger is that a sharp fall in bitcoin and other currencies could badly hurt the company’s quarterly results.
Coinbase is well aware of this, with CEO Brian Armstrong saying on Wednesday that the company will diversify away from transaction fees over the next 5 to 10 years, by developing products like crypto cards.
Marszalek, whose company has a Visa crypto card and recently launched a NFT marketplace, said: “The question is who is going to be able to build a robust business that doesn’t just stand on one leg.”
He added: “We will see who manages to do it over the next couple of years, it’s going to be a fun thing to watch.”
Shares of Coinbase climbed as much as 6% on Thursday following its debut on the Nasdaq on Wednesday, after various funds managed by Cathie Wood’s ARK Invest snapped up around $250 million worth of shares.
The stock pared gains in early trading, rising 1.1% to $331.75 at 10:35 a.m. in New York.
The listing of Coinbase was celebrated by many cryptocurrency bulls who view the move as a milestone for the digital currency ecosystem that has long faced scrutiny and skepticism.
“Coinbase’s direct listing on Nasdaq is a major step forward in bringing legitimacy and mainstream awareness to the digital asset sector as a whole,” Brad Kam, co-founder of Unstoppable Domains, told Insider.
“For the next billion cryptocurrency users, it will be critical that we focus on ease of use. Millions in funds have been lost due to typos in hard-to-read wallet addresses or simply sending the wrong coin to the wrong wallet,” he said.
A light economic calendar will “leave plenty of time for investors to watch the debut of Coinbase to the public markets. The listing couldn’t come at a better time for the company as crypto-currencies have been on absolute fire with both bitcoin and ether trading at record highs and riding what looks to be their seventh straight day of gains,” said Paul Hickey, co-founder of equity research firm Bespoke in a note.