December 1, 2023

SAN FRANCISCO – The digital currency, once ridiculed as a tool for criminals and ruthless speculators, is slipping into the mainstream.

Traditional banks help investors put their money into cryptocurrency funds. Companies like Tesla and Square are hoarding Bitcoin. And celebrities are leading a digital art buying frenzy that uses a technology called NFT.

On Wednesday, digital or cryptocurrencies will take their biggest step to date towards wider adoption when Coinbase, a startup that allows people to buy and sell cryptocurrencies, goes public on the Nasdaq. Coinbase shares were given a reference price of $ 250 each Tuesday evening, which would give the company a value of $ 65 billion based on all shares outstanding.

Let’s call it Crypto’s Coming Out Party. Coinbase, based in San Francisco, is the first major cryptocurrency start-up to go public on a U.S. stock market. This is done to a rating that exceeds that of Capital One Financial Corporation or the rating agency Moody’s.

Proponents of cryptocurrency – who many expect the technology to turn the global financial system upside down – celebrate the watershed as an affirmation of their longstanding belief in the potential of their cause.

Coinbase’s listing answers the question “Is crypto a real thing?” said Bradley Tusk, a venture capitalist whose firm Tusk Venture Partners supported Coinbase. “Any industry that can launch an IPO of this size is without a doubt a real thing and is proven by the market.”

The listing offers mainstream investors who may be wary of buying risky digital currency directly the option of owning shares in a Securities and Exchange Commission-approved business that will make transactions easier.

It also gives the financial world a glimpse into Coinbase’s healthy profits – something most other highly respected tech startups lack – and its increasing adoption. Coinbase, with 1,700 employees and 56 million registered users, had estimated net profits of $ 730 million to $ 800 million in the first three months of the year. During this period, the company generated revenue of $ 1.8 billion, a four-fold increase over the previous year.

“It blows a lot of the traditional tech and finance companies out of the water,” said Jalak Jobanputra, founder of Future Perfect Ventures, an investor in the category. “It wasn’t that long ago that people just thought crypto wasn’t big enough.”

However, Coinbase’s listing also raises a question about the future of digital currency. Industry evangelists have long predicted that cryptocurrency and the underlying blockchain technology could spawn a decentralized financial system without governments or banks – a revolution that rivals that of the internet. This ethos is reflected in Coinbase’s plan to “create an open financial system for the world” and “increase economic freedom”.

So far, however, the cryptocurrency has mainly been a means of financial speculation and trading. Few people want to use Bitcoin for everyday purchases like coffee because the price is so volatile. Many early buyers have gotten wildly rich simply by holding their crypto or buying the dip when prices are falling. Others ruefully tell stories of the sushi dinner they bought with Bitcoin years ago that would be worth $ 200,000 today, or the million dollar pizza.

Coinbase facilitates this trading by acting as the central exchange. Before it and similar services were created, people had to set up their own digital wallets and transfer funds.

“Can it be more than one asset class?” Asked Mr. Tusk. “That’s still a lot in the air.”

Coinbase’s trajectory has followed the booms and busts of the broader crypto world. Brian Armstrong, former Airbnb software engineer, and Fred Ehrsam, former Goldman Sachs retailer, started in the company in 2012 when Bitcoin was the only digital currency and it wasn’t very useful or valuable.

“It was perceived as dubious or dodgy,” said Marc Bernegger, an investor at Crypto Finance Group, an asset manager in Switzerland.

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Headlines about the Silk Road, a marketplace for buying and selling drugs and weapons with Bitcoin until federal authorities shut them down, and the mountain. Gox, a crypto exchange that collapsed on charges of theft and embezzlement, further clouded the fledgling industry.

Coinbase tried to change that. The company joined Y Combinator, a prestigious start-up program, and raised money with leading venture capital firms such as Union Square Ventures and Andreessen Horowitz.

Mr Armstrong was one of the few people in the industry who seemed willing to obey inevitable regulations rather than compromising to avoid them, said Nick Tomaino, who dropped out of business school in 2013 to switch to Coinbase.

Coinbase also convinced well-known retailers to accept Bitcoin. “It was good for credibility when people saw that you can actually buy a mattress at Overstock with a bitcoin,” said Tomaino, who left in 2016. Coinbase made money on transaction fees.

But Bitcoin’s extremely volatile price and a slow computer network that managed it made transactions difficult, and people began to view the currency as an investment. In 2015, Ethereum was launched, a more tech-savvy cryptocurrency network that entices enthusiasts to build businesses and funds around the technology.

Soon after, a flurry of “initial coin offerings” with companies selling tokens with the promise of the technology they wanted to build sparked a new boom in cryptocurrency trading. But it drained quickly after it was discovered that many projects were scams and scams US regulators viewed the offers as securities and required compliance with financial regulations.

Over the past year, day trading and excess cash in the pandemic have taken the value of Bitcoin, Ether (the currency of the Ethereum network) and other tokens to new levels and ushered in another boom.

It inspired Tesla to buy $ 1.5 billion worth of Bitcoin and payment company Square to spend $ 170 million. In March, Morgan Stanley began providing access to three Bitcoin funds for its high net worth clients, and Goldman announced that it would soon be offering similar access. The Mayor of Miami has proposed that the city accept tax payments in Bitcoin and invest city funds in the asset.

The stock trading app Robinhood announced that 9.5 million of its customers traded cryptocurrency in the first three months of the year – more than five times the last three months. According to PitchBook, start-up venture finance related to crypto rose to its highest ever level in the first quarter to $ 3 billion.

PayPal recently added a crypto trading and shopping feature for its US customers. The company was motivated by consumer interest and advances in technology that accelerated transactions. The plan is to rapidly expand the offer to customers around the world.

“It seems like the time is right,” said Jose Fernandez da Ponte, head of PayPal’s blockchain, crypto and digital currency group. “We believe this has the potential to revolutionize the payment and financial system in general.”

Nevertheless, the so-called revolution faces some challenges. Coinbase struggled to keep up with demand at times. Some customers who lost access to their accounts complained that the company had stopped responding. It has also received criticism for its treatment of female and black employees.

Treasury Secretary Janet L. Yellen has threatened tighter regulation of currencies, including restricting their use.

And a sharp drop in prices could send speculators on the run again. In its financial prospectus, Coinbase warned that its business results would fluctuate with the volatility of crypto assets, “many of which are unpredictable and in certain cases are beyond our control.”

The industry’s biggest problem – fulfilling the promise that technology is more than just a place to park money – could last for another decade.

“There is no doubt that we are in the latest boom and I don’t know if that will change tomorrow or in two years,” said Tomaino. “But the busts and booms are always higher than the last.”