Assessing the Coinbase IPO: Cryptocurrency Marketplace Direct Listing 1 Year On

Coinbase made history on April 14, 2021, by successfully listing on the NASDAQ exchange for billions of dollars.All Coinbase employees are remote, and the company lacks a physical headquarters, so this was remarkable. It also signaled that the Crypto industry has come of age and is now considered mainstream by one of the world's biggest stock exchanges.One year later, is the optimism that the Coinbase IPO generated still warranted? It's worth taking a look.

Coinbase IPO via Direct Listing Was a Success

When Coinbase went public in April 2021, the value of a Coinbase share briefly shot up to $429.54 at one point on listing day. This briefly valued the company at over $100 billion, according to CNBC.

The party didn't last long, however.

Coinbase shares have since fallen to the "coin basement" as one year later, a Coinbase share currently trades for at around $90 while the company's value wallows at around $25 billion.

Coinbase Shares Have Fallen: What Happened?

There are at least three reasons why Coinbase isn't doing as well as expected at this point.

1. Cryptocurrencies Have Plummeted

After losses in the crypto industry, the value of all cryptocurrencies has fallen by over 60%. As Reuters notes, the crypto industry has declined from a high of $2.9 trillion in 2021 to below $1 trillion in 2022. If the regular stock market experienced such a blowout, the economy would be in a serious recession.

It was inevitable that Coinbase shares would fall in tandem with the value of cryptocurrencies.

2. Lower Revenues

Coinbase relies on commissions from trades to make money. According to the Coinbase Shareholder letter, its net revenue was $1.2 billion, while total expenses were $1.7 billion in the first quarter of 2022—Coinbase lost $500 million.

A decline in total trading volume drove the loss to $309 billion, a decrease of 44% compared to the previous quarter (although this was consistent with trading volume declines across the crypto industry, which also fell 44%). Coinbase also lost 2.2 million monthly active users.

Paradoxically, Coinbase expanded its trading volume market share in seven of the top ten assets traded on Coinbase.

In addition, because Coinbase's commissions-based revenue will undoubtedly come under pressure from rivals like Binance, FTX, Gemini, and Kraken in the coming months and years, investors have gotten spooked.

3. SEC Investigation

According to Bloomberg, the Securities and Exchanges Commission has launched an investigation of Coinbase for allegedly facilitating the illegal trade of digital assets that qualify to be securities. The SEC is also investigating a Coinbase employee for insider trading.

This has also spooked investors. As a result, many have sold off Coinbase shares and depressed shares of Coinbase further.

Coinbase Is Not Too Worried

Coinbase doesn't seem too worried about its future. After such a dismal year, you would expect it to lay off staff. Instead, according to its shareholder letter, Coinbase has added 3,200 employees overall.

We ended Q1 with 4,948 full-time employees, up 33% from last quarter... Over the past twelve months, we have added over 3,200 net new employees.... Our growing team gives us additional resources for product development and execution, as well as customer support, compliance, and more, which we believe serve as long-term competitive advantages for us

In addition, Coinbase expects to be well served by products such as Coinbase Wallet, Coinbase NFT marketplace, and its expansion of staking on the platform through the addition of Cardano.

It also has billions of dollars in cash and assets.