Cryptocurrency exchange Coinbase made its long-awaited stock market debut on 14 April, selling its shares to the general public for the first time on the Nasdaq exchange.
The company’s stock soared past Nasdaq’s $250 reference price to open at $381 per share. The stock then rose to a high of $429.54 before falling back to close the day at $328.28, giving the company a valuation of $85.8 billion.
Across many brokerages, it was one of the most traded stocks, as investors scrambled for a piece of the action. But why exactly is Coinbase stock so popular? We take a look.
What is Coinbase?
Coinbase is a US cryptocurrency exchange that allows customers to trade a vast range of digital assets or cryptocurrencies.
It’s currently the largest crypto exchange in America by trading volume. The company makes money primarily by charging users a transaction fee.
Coinbase has benefited greatly from the rise in value of Bitcoin and other cryptocurrencies. Bitcoin, the most valuable digital asset, has risen in value by more than 1,000% in the last year alone, reaching new highs of nearly $65,000 (£47,000).
Coinbase went public via a direct listing. Unlike the traditional IPO process, a company that goes public via direct listing does not get banks involved in underwriting. It also does not raise new money.
Instead, it offers existing shareholders the chance to sell their stocks to the market. Other high-profile companies including Spotify, Slack and Roblox have gone public this way.
Coinbase listing was seen as a major step towards cryptocurrencies gaining wider acceptance among traditional investors. Some major firms, including Tesla and MasterCard, have already embraced and invested in cryptocurrencies.
Why is Coinbase stock so popular?
Coinbase stock turned out to be hugely popular as soon as it hit the market. At digital brokerage Stake, it was the most traded stock right after its debut.
Andrew Dengate, head of UK marketing at Stake stated: “Coinbase is shaping up to be Stake’s most popular new listing to date. Since commencing trading on Wednesday afternoon, it has been our number one traded stock, representing over a third of all trades globally.”
It’s easy to see why Coinbase stock has become so popular.
Many view it as a potentially less risky way to participate in the growing crypto market without directly investing in digital assets such as Bitcoin.
Furthermore, investors may have been swayed by Coinbase’s recent financial performance.
The company reported an estimated profit of $800 million (£578million) in the first quarter of 2021 alone. That is more than the company’s total profit of $322 million (£233 million) in 2020.
Unlike Coinbase, both Uber and Deliveroo went public at a time when they were losing money, which could have made a big difference in terms of investor acceptance.
How can UK investors invest in Coinbase stock?
UK investors can invest in Coinbase shares using a share dealing account from a provider such as Stake, which currently allows local investors to invest in 4,000+ US stocks and ETFs.
Investors can also invest in Coinbase stock using a stocks and shares ISA. All capital gains, dividend income, and interest are tax free within this investment vehicle. But tax rules can change and their impact on you will depend on your individual circumstances.
As for whether you should buy Coinbase stock, it’s a personal decision you should make after doing your research. There’s a strong bull case for Coinbase, but there’s equally a strong bear case.
On the bull side, the crypto market is growing rapidly. And with Coinbase as one of the industry leaders, further growth of the industry will only be good for investors.
On the bear side, issues of concern include:
- Stiff competition from other top firms such as Binance and Etoro
- Uncertainty over the future of crypto, including whether cryptocurrencies are here to stay and how financial regulators will handle the crypto space
- High volatility in the price of crypto assets such as Bitcoin
If you decide to take the plunge and invest in Coinbase, it would be best to do it as part of a diversified portfolio that includes investments in a wide variety of asset classes and investment products. This way, you remain protected in case Coinbase stock under-performs or the company itself goes bust.
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