Coinbase’s $100B+ public debut, explained

Coinbase is about to have a huge $100B+ public listing. Here’s the S-1 breakdown.


March 4, 2021

Don’t want to buy Bitcoin at $50k? Buy the trading exchange where people go to buy Bitcoin: Coinbase, the largest US cryptocurrency exchange.  

Its $100B+ direct listing will be tech’s biggest public debut since Facebook. 

Here’s everything you need to know:

First, let’s talk crypto and Bitcoin

Coinbase calls today’s financial system an inefficient and costly “patchwork of intermediaries” — banks, brokers, custodians, exchanges, clearinghouses, payment processors, etc. 

The first crypto asset — Bitcoin — agrees with this assessment.

What Google did for knowledge, Bitcoin wants to do for finance. It endeavours to democratize access to a new, digitally native financial system — with just a few taps on a smartphone, anyone should be able to easily and safely send and receive Bitcoin in lieu of traditional money. 

Why? Because cryptocurrencies like Bitcoin act as digital assets whose transactions can be tracked via secure electronic ledgers (i.e. blockchain). 

Bitcoin is a building block for the larger cryptoeconomy AKA a more transparent, efficient, and accessible financial system of the internet age that leverage crypto assets. This is the space in which Coinbase plays. 

The business of Coinbase, explained 

How does someone acquire a cryptocurrency like Bitcoin? There are two main options: via mining, or buying it via an exchange. Given how complex and expensive mining is, exchanges are the way to go for most people (trust us on this one). 

Coinbase provides not just an exchange, but a whole crypto ecosystem to buy, store, and use crypto assets safely and in a user-friendly experience. 

  • Cryptocurrency exchanges: There’s a regular and a pro version for more sophisticated investors.  
  • Wallet service: Where customers can safely store their cryptocurrencies.
  • Coinbase card: A physical debit card allowing people to spend cryptocurrency in the physical world.
  • USD Coin: Coinbase’s own cryptocurrency that exchanges USD to crypto in a 1:1 ratio
  • Coinbase commerce: Online retailers are able to use this software to accept cryptocurrency. Think Paypal, but for crypto. 

There’s a lot to like about Coinbase

In the US, Coinbase is a go-to starting place for crypto enthusiasts. In fact, $456B of cryptocurrency has been traded via its platform since its inception.

On a company level, Coinbase has plenty of strengths:

  • End-to-end infrastructure: This has attracted 43M retail users, 7k institutions, and 115k ecosystem partners (e.g. developers, asset issuers, merchants, etc.) to the platform. 
  • Flywheel effects: Coinbase’s technology and products bring new investors and partners to the platform. 90% of retail users come via word-of-mouth marketing or organic search.
  • Security: While crypto brokerages aren’t insured federally by SIPC, Coinbase insures any losses from theft or hacks. 
  • Company revenue growth: In 2020, it more than doubled its prior-year revenue, going from $0.5B to $1.3B. 
  • Stickiness of each user: Coinbase makes about $500 per user. Plus, with subscription products growing 126% y-o-y and 21% of retail investors also using other products on the platform, unit revenue could increase.  
  • Profitability: Since 2016, Coinbase has been largely profitable every year.

On the macro level, there are promising tailwinds

  • Industry growth: Since 2012, the crypto space has grown 150% per year. The market is now worth $782B+. 
  • Intercompany expansion: Coinbase offers retailers the equivalent of PayPal, but for cryptocurrency.
  • Pent-up demand: This will be the first major, non-cryptocurrency asset for retail investors to buy. VCs like Slow Ventures predict high future demand. 

Still, investing in Coinbase is definitely risky

While taking on the dinosaur of the current financial system, the crypto space is still a spring chicken. 

  • Inherent volatility: 96% of Coinbase’s revenue is from transaction fees. Q-on-Q revenue may be unpredictable as transaction fees vary based on the fluctuating cryptocurrency prices and trading volume.
  • Crypto’s status quo: The vision is for crypto to be a direct money substitute. However, most people view it as an asset class to acquire and hold — Bitcoin’s average hold time just surpassed 1000 days. 
  • Dependence on select cryptocurrencies: 56% of Coinbase’s trading volume has been in Bitcoin and Ethereum. 
  • Regulation: Although lacking now, extensive regulation is to be expected in the near future as the industry grows.
  • Illicit activity: critics see the space as being lawless and experimental. 1% of all crypto transactions are estimated to be illicit dealings.
  • Competitors: newcomers like Bakkt (with an upcoming $2B IPO) are coming in. Existing tech companies like Robinhood, Paypal, and Square are allowing crypto transactions now.

In two years, it went from $8B to $100B in valuation. How? 

In total, Coinbase has raised $540M to date. Its last round in 2018 was valued at ‘just’ $8B. 

So, what happened? 

Starting this January, Coinbase started selling weekly batches of up to 1.8M shares via Nasdaq’s Private Market to test the appetite and price. Each week’s shares went for increasingly more money. Eventually each share went for almost $400 / share, translating to a $100B market cap. 

Timing is TBD. Yet the public debut is expected to happen soon, especially since Coinbase is doing a direct listing

Who’s getting rich(er) in the IPO? 

In 2020, some Coinbase executives made more than Tim Cook, who made ‘only’ $15M. 

Not every exec’s comp is listed in the S-1. Here’s the details of those who were: 

  • Brian Armstrong (CEO and founder): The 38-year-old, former Airbnb engineer made nearly $60M in 2020 alone. 
  • Surojit Chatterjee (Chief Product Officer): The former Google exec made $16M last year.
  • Paul Grewal (Chief Legal Office):  The former Facebook exec made $18M last year.
  • Fred Ehrsam (Board member, co-founder): The former Goldman Sachs trader has over 500k of shares in Coinbase.

Investors include Andreessen Horowitz, Initialized Capital, Tiger Global, and Y Combinator. 

Closing thoughts — a historic moment for crypto

Beyond being a success for Coinbase, a strong IPO would legitimize crypto in a major way:  

  • Spotlights a big crypto company: It’ll be the first US major exchange to go public.
  • Brings in new mainstream investors: Without needing to buy the underlying assets (e.g., Bitcoin, Ether), Coinbase will allow more Wall Street and retail investors to add crypto to their portfolios.

Mind the mining. We’re about to witness history with Coinbase’s IPO.

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