Bitcoin is having an amazing bull run. The price has risen from $7,400 in October to over $40,000 in January.
That has been great for Bitcoin and the entire cryptocurrency industry.
However, it has overshadowed another important development in the cryptocurrency industry – the announcement of the Coinbase IPO. The Coinbase IPO should occur at some point in 2021.
There’s no denying that this will have a huge impact on crypto, but what type of impact will it have?
This article will examine some of the potential impacts on crypto from the Coinbase IPO.
What will the Coinbase IPO do to the crypto market?
First of all, no one really knows what the Coinbase IPO will do to the crypto market. All people can do is offer theories on what the IPO will do to the market based on investor trends.
The most important and likely impact is that investors will view the Coinbase IPO as a Wall Street friendly way to get exposure to cryptocurrency.
This is important because there are not any other mainstream strategies to get exposure to cryptocurrency at the moment. Basically, banks can invest in Coinbase stock as a sort of way to get exposure to Bitcoin and other cryptocurrency. Why can they do this?
Coinbase holds a large amount of cryptocurrency. In fact, the entire business is based on cryptocurrency, so an increase in price will cause the stock price to increase in theory.
However, the problem with the Coinbase IPO is that institutional investment might flow into Coinbase rather than the underlying cryptocurrency. Again, this is because it’s simpler for institutions to purchase a stock than it is for them to buy cryptocurrency.
That said, the relationship between the price of Coinbase stock and the price of Bitcoin will be a little more complex than that. The price of Coinbase stock cannot simply keep increasing independent of Bitcoin.
In our opinion, the IPO will cause the price of Bitcoin to increase. Sure, some institutions will invest in Coinbase rather than cryptocurrency. But others will see cryptocurrency as a more direct method for investment and use that instead.
Most importantly, institutions will have the ability to short Coinbase stock and write options on Coinbase stock.
Basically, it comes down to this. Coinbase stock will serve as a derivative of cryptocurrency. And that’s huge because it will allow even more institutional capital to flow into the space.
Another huge benefit of the Coinbase IPO is that it will finally show that cryptocurrency can compete with Wall Street. Many have speculated that the Coinbase IPO will be similar to the Netscape IPO in the early 1990s.
This will be the first time cryptocurrency has received attention from Wall Street.
Will Coinbase rise to the occasion and spur a cryptocurrency bubble similar to the dot-com bubble that launched the Internet into the mainstream? Or will the Coinbase IPO fall flat?
You probably know the answer by now. Cryptocurrency is here to stay and the Coinbase IPO is only the beginning of cryptocurrency taking over Wall Street.
When will the Coinbase IPO occur?
Coinbase filed the IPO paperwork in early December. The actual IPO will likely occur in Q1 or Q2 2021.
That’s a relatively fast date for an IPO. But Coinbase has likely been in the works for an IPO for years.
Will Coinbase fund the IPO with cryptocurrency?
There have been rumors that Coinbase will fund the IPO with cryptocurrency. It would be great for cryptocurrency if Coinbase did this.
However, we find it unlikely that Coinbase will fund their IPO with cryptocurrency because of regulatory concerns. But it’s still not off the table that they will do this – it’s just extremely unlikely.
Will the Coinbase IPO suck liquidity out of the crypto market?
As discussed earlier, the Coinbase IPO has the potential to suck liquidity out of the crypto market because investors might flood into Coinbase rather than investing in cryptocurrency.
The problem with this is that doing that will cause the Coinbase price to skyrocket, which investors might take as a sign to invest in cryptocurrency.
Overall, we do believe there will be some loss of liquidity in cryptocurrency in the short term due to the Coinbase IPO. However, once things settle down the Coinbase IPO might actually increase liquidity as investors that are priced out of Coinbase stock move into bitcoin and other cryptocurrency.
Final Verdict on the Coinbase IPO
The Coinbase IPO does raise some concerns about the future of the cryptocurrency market – will it suck the liquidity out of the cryptocurrency market?
It might, but we view the potential benefit of a Coinbase IPO as outweighing the negative of sucking out some liquidity.
In our opinion, the Coinbase IPO has the potential to parallel the Netscape IPO. How so?
The Coinbase IPO has the potential to cause other cryptocurrency exchanges to go public. And the impact of that on the cryptocurrency market will be huge as that would prove that cryptocurrency is a legitimate product.