‘Putting their money where their mouth is’: Here’s what 3 analysts have to say about Coinbase’s decision to add $500 million of crypto to its balance sheet

Coinbase Co-founder and CEO Brian Armstrong speaks on stage in front of a green background
Coinbase Co-founder and CEO Brian Armstrong

  • Coinbase announced recently it will add $500 million of cryptocurrency to its balance sheet, and invest in a portfolio of crypto assets.
  • Analysts largely agree the move signify’s Coinbase’s commitment to the cryptocurrency space.
  • But several noted that the balance sheet addition adds an extra layer of risk to Coinbase stock.
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Coinbase announced on Thursday that it would add $500 million of cryptocurrency to its balance sheet, while also allocating 10% of its quarterly net income to a portfolio of crypto assets. Insider gathered insights from three Coinbase analysts to understand the move.

“I like that they put their money where their mouth is,” said Mizuho analyst Dan Dolev.

He told Insider that for a company with crypto central to its business, Coinbase still operates heavily in fiat money. This move slightly changes that, although Dolev would like to see the exchange go a step further, and charge customer transaction fees in crypto, not dollars.

“That would signal even more commitment” to cryptocurrency, Dolev said.

Coinbase CFO Alesia Haas admitted that the majority of Coinbase’s corporate financial transactions – like paying vendors and employees, or investing corporate cash – are “heavily weighted” in fiat in a Friday blog post. But she said Coinbase wants to lead by example by enabling crypto adoption and utility, and this investment is a move towards that goal.

“We believe that in the future, more and more companies will hold crypto assets on their balance sheet,” said Haas. “We hope by incorporating more crypto assets into our own corporate financial practices, we can take another step towards building a more open cryptoeconomy.”

Chris Kuiper, a CFRA equity research analyst, echoed Dolev’s comment that the announcement demonstrates Coinbase’s commitment to the cryptocurrency industry. Kupier maintained his “buy” rating on Coinbase following the announcement that he said was largely positive for the stock.

However, the addition of crypto to Coinbase’s balance sheet adds an extra layer of risk, as the company’s stock price is already tied to bitcoin’s price and trading activity levels, Chris Brendler, D.A. Davidson senior research analyst told Insider. Coinbase stock often moves in tandem with bitcoin’s price.

“It’s not necessarily going to make or break the company,” Brendler told Insider. “But it certainly is a little bit scary when you’re putting cash in one of the raw materials that you’re already tied pretty closely to.”

Offsetting some of that risk is a $4 billion cash stockpile that Coinbase has said it is building in anticipation of a “crypto winter” as well as a possible regulatory crackdown, Kupier noted.

Brendler added that because Coinbase is so tied to crypto, it needs to have a bigger cash balance than other high- growth, non-crypto companies, in case there is a “crypto winter” or sustained period of low crypto prices and low activity.

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Coinbase’s CFO says the company is looking to focus more on institutional clients – and lays out what services those firms generally need

coinbase direct listing

Coinbase, the world’s largest cryptocurrency exchange, is looking to focus more on institutional clients, CFO Alesia Haas said on Wednesday.

“The way that we look at it is where the money is in the world,” Haas told CNBC. “A lot of that money sits in institutional hands, whether that is in pensions or asset managers. So I think we’ll shift into more institutional money as we go forward.”

Haas also laid out what institutional firms generally look for when seeking their services.

The first step is usually for cryptocurrency custody, a service that Coinbase provides institutional firms so they can have a safe and secure way to store their digital assets, said Haas.

“They really appreciate our history of investing in security that we have not had a loss due to cyberattacks on our platforms since our inception,” she told CNBC.

From there, Haas said it moves into trading, data services, and borrow-lend products, in that order.

“We’re really building deep roots with a lot of our institutional clients across their investing needs in the crypto economy,” she added.

Among its roster of clients are Elon Musk’s SpaceX and Tesla, as well as PNC Bank, Third Point, and WisdomTree, CEO Brian Armstrong revealed on Tuesday during the earnings call. Around 10% of the top 100 largest hedge funds by AUM have also onboarded the company’s institutional product, he added.

The company on Tuesday posted second-quarter earnings that crushed analyst expectations, boosted by a volatility-spurred jump in trading volumes. The chart below shows pronounced quarter-over-quarter growth in both retail and institutional activity.

Coinbase key metrics: institutional vs retail traders

Retail investors, which pay more fees compared to institutional traders, comprised almost 95% of Coinbase’s transaction revenue in the quarter.

Coinbase’s stock rose to as much as 9% to $294 on Wednesday.

Read more: A key bitcoin lightning network developer shares how he makes $4,500 a month just in fees from running a node. He and 3 other crypto experts lay out how to run profitable nodes.

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Coinbase sinks to the lowest level since its IPO as newly public companies struggle

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Coinbase shares tumbled to their lowest since the company’s hotly-anticipated Nasdaq direct listing on April 14.

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.

Cryptocurrency exchange Gemini allowed customers to trade dogecoin staring this Tuesday, joining a growing list of platforms such as Kraken and Robinhood.

Competition is also a concern. While rival Binance has said it has no plans of going public, Kraken said it could go public next year after seeing an explosion in bitcoin trading volume.

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From Solana to Chainlink to Chiliz, here are 15 altcoins headlining a world of tokens that extends well beyond bitcoin – and what they’re all used for

The photo shows physical imitations of cryptocurrency
  • Bitcoin may be the most know cryptocurrency, but there is a world of altcoins out there with their own specific uses.
  • Apart from currencies, these cryptoassets have various utilities from “proof of stake” to decentralized finance.
  • Insider collected the most common types of cryptocurrencies and 15 examples from a wide world of digital assets.
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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.

Today, bitcoin boasts of a $1 trillion dollar market capitalization and enjoys the support of 22 public companies, according to data by CoinGecko. These include major firms from MicroStrategy to Tesla. Not included in that number are major corporations adopting bitcoin such as Goldman Sachs, Bank of New York Mellon, and PayPal.

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.

1. Currencies

This is the most commonly known utility of cryptocurrencies. Several companies have allowed the purchase of their products using cryptocurrencies such as Tesla car, while dogecoin can be used to buy Dallas Mavericks’ tickets and merchandise. Other currency examples are litecoin and bitcoin cash.

2. Stablecoins

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).

Read more: A 29-year-old self-made billionaire breaks down how he achieved daily returns of 10% on million-dollar crypto trades, and shares how to find the best opportunities

4. Decentralized Finance

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).

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Coinbase slips to lowest point since its debut as bitcoin plunges below $50,000

coinbase direct listing
People watch as the logo for Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, is displayed on the Nasdaq MarketSite jumbotron at Times Square in New York, U.S., April 14, 2021.

  • Coinbase slid to a record low Friday, 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 its first day of trading last week.
  • Mizuho initiated coverage of Coinbase with a “neutral” rating and price target of $285.
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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.”

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The Coinbase IPO is a watershed moment for the industry that will suck in big-name investors, says Crypto.com CEO

Coinbase went public on the Nasdaq on Wednesday.

  • The Coinbase IPO is a watershed moment for the industry, the boss of the Crypto.com exchange said.
  • Kris Marszalek said it “immediately reprices all the companies and all the deals in this space.”
  • Yet he said exchanges need to diversify to become less dependent on volatile trading revenue.
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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.”

Institutional interest has been a major driver of the soaring bitcoin price in 2021. Big-name banks JPMorgan, BNY Mellon and Morgan Stanley are getting involved. And firms are queueing up to launch the first US bitcoin ETF, should regulators allow them.

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.”

Yet, Marszalek said the volatility of cryptocurrencies is a problem for exchanges, and is something Coinbase needs to address.

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.”

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Coinbase climbs 6% after Cathie Wood’s ARK funds show $246 million investment in the crypto exchange

Brian Armstrong, founder and CEO of Coinbase; Cathie Wood, founder and CEO of ARK Invest.

  • Shares of Coinbase rose as much as 6% on Thursday, following its turbulent trading debut.
  • Three of famed investor Cathie Wood’s funds snapped up close to $250 million worth of shares.
  • At Coinbase’s closing price on Wednesday of $328.28 per share, ARK holdings are worth about $246 million.
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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 Ark Innovation ETF, Ark Fintech Innovation ETF, and Ark Next Generation ETF together bought a total of 749,205 shares of the cryptocurrency exchange during its much-anticipated debut, according to daily fund trading summary data on the fund’s website.

While Tesla remains the top holdings of two of its funds – ARKW and ARKK – the star stock picker sold around $170 million shares of the electric car company, which is also known for its bitcoin exposure. Tesla in February invested $1.5 billion in the popular cryptocurrency.

Coinbase, the largest cryptocurrency exchange in the US, opened at $381, spiked to $429, then tumbled below its debut price, even dipping as low as $310.

Still, at Wednesday’s close, it was worth more than major companies such as GM, FedEx, and Twitter

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.

Read more: Bitcoin is a headache to store, and that’s created an investment opportunity that could theoretically pay determined traders big risk-free returns by December

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US stocks hover near record highs as traders digest strong mega-cap bank earnings

NYSE traders
  • The S&P 500 stuck close to record highs as the first-quarter earnings season kicked off.
  • Goldman Sachs, JP Morgan Chase and Wells Fargo each turned in better-than-expected results.
  • Coinbase will make its trading debut on Wednesday.
  • See more stories on Insider’s business page.

US stocks clung near record highs Wednesday as the first-quarter earnings season began its shift into high gear with blowout earnings results from big banks including Goldman Sachs.

The S&P 500 sought to build on its record close Tuesday that was led by tech stocks. Shares in that sector were also higher on Wednesday, giving a boost to the Nasdaq Composite.

The new quarterly earnings season started out with JP Morgan Chase JP Morgan Chase and Wells Fargo each turning in profit that surpassed Wall Street’s targets. Goldman Sachs beat revenue and profit expectations, aided by strong trading and investment banking revenue.

Here’s where US indexes stood at 9:30 a.m. on Wednesday:

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.

Around the markets, Credit Suisse reportedly put $2 billion of Archegos-linked stocks on the market after the hedge fund’s meltdown. Part of the stock offering included Discovery Communications whose shares were lower Wednesday.

The First North American bitcoin ETF surges beyond $1 billion under management.

Gold fell 0.5% to $1,737.50 per ounce. Long-dated US treasury yields rose, with the 10-year yield at 1.634%.

Oil prices rose. West Texas Intermediate crude gained 2.2% to $61.50 per barrel. Brent crude, oil’s international benchmark, moved up 2.1% to $65.05 per barrel.

Bitcoin surged to $64,115.

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