Coinbase closes 14% below opening price after explosive debut, valuation over $100 billion

Major cryptocurrency exchange Coinbase finally started trading on the Nasdaq on April 14. Marking a watershed moment for cryptocurrencies, Coinbase became the first major exchange for having its shares publicly traded. 

Coinbase stock closely tied to crypto market performance

Coinbase’s direct listing opens the door of interest from mainstream investors and market watchers. Bitcoin and Ethereum’s price also surged ahead of the listing, marking new all-time highs. Galaxy Digital CEO Mike Novogratz believes that now that Coinbase is listed, “institutions are going to come flooding into this place.”

Brian Armstrong’s crypto exchange debuted on the Nasdaq with its opening price at $381, taking its valuation of just under $100 billion. The company’s stock, COIN, had a debut price 52% higher than its $250 reference price.

While all eyes were on the direct listing, Coinbase shares rose to a high of $430 per share, taking its market capitalization to over $112 billion. 

Coinbase stock is closely tied to the performance of cryptocurrencies like Bitcoin and Ethereum. The company stated earlier this year in a Form S-1 filing with the SEC that its trading volume is directly tied to the crypto market's performance. 

The company’s shares fell below its initial opening price by 14%, closing at $328. Subject to volatility in tandem with the prices of cryptocurrencies, Meltem Demirors, Chief Strategy Officer at CoinShares, explained:

Historically, Bitcoin, in particular, has gone through these two to three-year cycles where we see a period of tremendous expansion and growth and then we see a 30% to 40% correction, sometimes even greater.

Coinbase valuation is “ridiculously high”

The crypto exchange benefited from the cryptocurrency rally this year, raking in $1.8 billion in revenue, mostly made up of transaction fees. The company’s revenue alone in Q1 this year exceeded the whole of 2020.

While the COIN stock price could rise along with the crypto bull market, Coinbase’s stock price could also go down if the crypto market crashed. 

Coinbase additionally faces the risk of competitors driving down their fees in the market, with exchanges like Gemini, Bitstamp, Kraken, Binance and others likely to offer lower fees to take a part of the market share. According to New Constructs CEO David Trainer, the listed company’s valuation should only be roughly $18.9 billion.

Ahead of the trading debut, Trainer stated that the $100 billion valuation of Coinbase is “ridiculously high,” explaining that the company’s profitability faces the risk of being slashed. He added:

Even though Coinbase’s revenue surged over the past 12 months, the company has little-to-no chance of meeting the future profit expectations that are backed into its ridiculously high expected valuation of $100 billion.

Since the crypto market remains nascent, many other companies could compete for the profits Coinbase is enjoying today, he said. Demirors added:

Their margin is someone else’s opportunity, and already we see competitors in the space that are offering the same service, albeit with smaller brands, at much better prices.