Crypto’s AOL? Coinbase’s true value a mystery ahead of direct listing

Coinbase will open trade under COIN after its direct listing on Wednesday — but some industry insiders reckon the crypto exchange’s expected $100 billion valuation is too high.

Coinbase’s profits last quarter doubled what the company made in 2020, as much as $800 million from $1.8 billion revenue.

But the bulk of those profits came from trading fees, noted the Wall Street Journal, and those have disappeared from many traditional brokerages over the past few years.

If trading fees in crypto go the same way, Coinbase’s bottom line could take a hit. WSJ reported Kraken and Gemini already offer lower transaction fees.

#Coinbase Q1 profit more than doubles 2020 total. Generated rev of $1.8bn in Q1, surpassing 2020’s total of $1.3bn. Comp, which is expected to debut under ticker COIN next wk, said it had 56mln verified users in Q1. Investors see Coinbase fair value ranging from <$25bn to >$150bn pic.twitter.com/9ZJIbDOKg8

— Holger Zschaepitz (@Schuldensuehner) April 7, 2021

A sizable chunk of Coinbase’s 56 million users could (hypothetically) one day make the jump if that continues.

Combine that with the apparent rise of decentralized crypto exchanges and Coinbase’s core business could be threatened, thinks investment firm Magnetic’s William Quigley.

“Coinbase could end up like AOL, the early internet success story that fell behind more innovative rivals,” said Quigley (via WSJ). 

Not to mention, a slew of crypto exchanges are eyeing their own direct listings, which would inevitably dampen the company’s competitive position. 

Is Coinbase really as big as Nasdaq?

With this in mind, research unit New Constructs calculated Coinbase’s market value to be much lower than what the market currently expects.

“Coinbase’s expected valuation of $100 billion implies that its revenue will be 1.5x the combined 2020 revenues of two of the most established exchanges in the marketplace, Nasdaq and Intercontinental Exchange — the parent company of the New York Stock Exchange,” wrote New Constructs last week.

“Our calculations suggest Coinbase’s valuation should be closer to $18.9 billion, an 81% decrease from the $100 billion expected valuation,” said the firm. 

[Read more: Brian Armstrong on track for $3.4B payday as Coinbase goes public]

But while the general market waits, crypto-derivatives traders are busy.

Almost $2 million worth of tokenized pre-IPO Coinbase contracts have been exchanged on FTX in the past day — its second highest point since the market went live in December.

FTX traders currently values the company’s pre-IPO stock at around $145 billion.