Coinbase public listing is a cryptocurrency coming-out party

SAN FRANCISCO • Digital currency, once mocked as a tool for criminals and reckless speculators, is sliding into the mainstream.

Traditional banks are helping investors put their money into cryptocurrency funds. Companies like Tesla and Square are hoarding bitcoins. And celebrities are leading the way in a digital-art spending spree using a technology called a non-fungible token.

On Wednesday, digital or cryptocurrencies took their biggest step yet towards wider acceptance when Coinbase, a start-up that allows people to buy and sell cryptocurrencies, went public.

Coinbase shares began trading at US$381 each, up 52 per cent from a reference price of US$250, eventually closing at US$328.28.

That gave the company a valuation of US$85.7 billion (S$114.4 billion) based on all its outstanding shares, more than 10 times higher than its last private valuation.

Call it crypto's coming-out party. Coinbase, based in San Francisco, is the first major cryptocurrency start-up to go public on a United States stock market. It did so at a valuation that rivalled that of Airbnb and Facebook when they went public.

Cryptocurrency advocates - many of whom expect the technology to upend the global financial system - are celebrating the watershed as vindication of their long-held belief in their cause's potential.

Coinbase's listing answers the question "Is crypto a real thing?", said venture capital investor Bradley Tusk, whose firm Tusk Venture Partners backed Coinbase. "Any industry that can launch an IPO of this size is without a doubt a real thing, and it's proven by the market."

The listing gives mainstream investors who may be wary of directly buying risky digital currencies the ability to own stock in a Securities and Exchange Commission-approved business that facilitates the transactions.

It also gives the financial world a look at Coinbase's healthy profits - something that most other highly valued tech start-ups lack - and ballooning adoption. Coinbase, which has 1,700 employees and 56 million registered users, reported an estimated US$730 million to US$800 million in net profit in the first three months of the year. It brought in US$1.8 billion in revenue during that period, a ninefold increase from a year earlier.

But Coinbase's listing also raises a question about the future of digital currency. Industry evangelists have long predicted that cryptocurrency and its underlying blockchain technology could bring about a decentralised financial system without governments or banks - a revolution rivalling that of the Internet.

That ethos is reflected in Coinbase's plan to "create an open financial system for the world" and "increase economic freedom".

But so far, cryptocurrency is mostly a vehicle for financial speculation and trading.

Few people want to use bitcoin for everyday purchases like coffee because its price is so volatile.

It has also become a lightning rod for environmental concerns because its technology uses a tremendous amount of computing power and electricity.

Many early buyers have become wildly rich by simply holding their crypto or "buying the dip" when prices fall. Others ruefully relay tales of the sushi dinner they bought with bitcoins years ago that would be worth US$200,000 today, or the million-dollar pizza.

Coinbase eases that trading by acting as a central exchange. Before it and similar services were created, people had to set up their own digital wallets and wire money.

"Can it be anything more than an asset class?" Mr Tusk asked. "That's still very much up in the air."

Coinbase's trajectory has followed the booms and busts of the broader crypto world.

Mr Brian Armstrong, a former software engineer at Airbnb, and Mr Fred Ehrsam, a former trader at Goldman Sachs, started in the company in 2012, when bitcoin was the only digital currency and it was not very useful or valuable.

"It was perceived as unserious or shady", just like the early days of the Internet, said Mr Marc Bernegger, an investor at Crypto Finance Group, an asset manager in Switzerland.

Headlines about Silk Road, a marketplace for buying and selling drugs and weapons with bitcoin until federal authorities shut it down, and Mt Gox, a crypto exchange that collapsed under accusations of theft and embezzlement, further tarnished the young industry.

Coinbase tried to change that.

The company joined Y Combinator, a prestigious start-up programme, and raised money from top venture capital firms including Union Square Ventures and Andreessen Horowitz.

Mr Armstrong was one of the few people in the industry who seemed prepared to comply with inevitable regulations, rather than cut corners to avoid them, said Mr Nick Tomaino, who dropped out of business school to join Coinbase in 2013.

Coinbase also persuaded well-known retailers to accept bitcoin.

"It was good for credibility when people saw you could actually use a bitcoin to buy a mattress at Overstock," said Mr Tomaino, who left in 2016. Coinbase earned money on transaction fees.

But bitcoin's wildly volatile price and a slow computer network that managed it made transactions difficult, and people began to see the currency as an investment.

In 2015, ethereum, a cryptocurrency network with more tech abilities, was introduced, enticing enthusiasts to build companies and funds around the technology.

Soon after, a flood of "initial coin offerings", where companies sold tokens on the promise of the technology they planned to build, created a new boom in cryptocurrency trading. But it quickly deflated after many projects were found to be frauds and US regulators deemed the offerings to be securities, requiring that they comply with financial rules.

Over the past year, day trading and a surplus of cash sloshing around in the Covid-19 pandemic have pushed the value of bitcoin, ether (the currency of the ethereum network) and other tokens to new heights, ushering in yet another boom.

It inspired Tesla to buy US$1.5 billion worth of bitcoin and payments company Square to spend US$170 million.

Last month, Morgan Stanley began offering its wealthy clients access to three bitcoin funds, and Goldman announced that it would soon offer 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 had traded cryptocurrency in the first three months of the year - up more than fivefold from the previous three months.

Venture funding for crypto-related start-ups surged to its highest level ever in the first quarter to US$3 billion, according to data company PitchBook.

PayPal recently added a crypto trading and shopping feature for its customers in the US. The firm was motivated by consumer interest and advances in the technology that made transactions faster. It plans to quickly expand the offering to customers around the world.

"It feels like the time is right," said Mr Jose Fernandez da Ponte, head of PayPal's blockchain, crypto and digital currencies group.

"We think this has the potential to revolutionise payments and financial systems in general."

NYTIMES