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On Jan. 28, 2021, the U.S. cryptocurrency exchange Coinbase announced its plans to go public via a direct listing, a strategy that Slack and Spotify also used to sell shares directly to the public without an intermediary.
Reports indicate existing shareholders — such as employees and former employees with equity in the company — will have the opportunity to sell their shares pre-IPO via the Nasdaq Private Market. As for typical retail investors, they’ll have to wait until after the stock starts trading on the market to buy in.
Coinbase hasn’t yet provided an official date for its IPO, but some reports have suggested it could be early in 2021. And while it hasn’t set a price for its shares yet either, Coinbase pre-IPO contracts are currently trading around $285 on the cryptocurrency derivatives exchange FTX, and the company has a pre-IPO valuation of $69.47 billion.
Want to buy Coinbase stock? Here’s what to consider
After Coinbase has gone public, you’ll be able to buy and sell its shares on the stock market like any other public company. (Learn how to buy stocks.)
However, what’s unique about this stock is that your investment’s success is tied to the popularity and trading volume of cryptocurrencies, but you won’t have to convert your U.S. dollars into cryptocurrency, according to Randy Carver, a registered principal with Raymond James Financial and president and CEO of Carver Financial Services in Mentor, Ohio.
“Buying Coinbase [stock] could provide a way to participate indirectly. It’s like the person selling picks and shovels to the miners; you don’t have to be a prospector to make money,” Carver says.
According to Chris McAlary, CEO of bitcoin ATM operator CoinCloud, Coinbase’s IPO could be a way for more traditional investors to gain crypto exposure without feeling like they’re jumping squarely into the game of speculation.
“If they’re more comfortable investing in stocks and putting their money behind a company with cash flow, a board of directors and the whole traditional infrastructure, they’ll appreciate the opportunity to bypass crypto volatility and invest in Coinbase stocks instead,” McAlary says.
Still intrigued? Consider these factors to decide if Coinbase is right for you.
1. The future of cryptocurrency
When you invest in a company, it’s a vote of confidence in the company itself, but it also shows you expect demand for its product or service to rise, too. Do you believe there’s a future for cryptocurrencies, like Bitcoin, Ethereum and the dozens of altcoins available to trade on Coinbase? Do you believe cryptocurrency is the “future of money” that could usher in an “open financial system around the world,” as Coinbase states on its website?
Or, is this all just a fad? An exchange like Coinbase is highly susceptible to changes in demand, and if crypto loses its appeal and users stop exchanging on Coinbase, this could impact revenue.
Just as you would want a thorough understanding of the renewable energy market before investing in a renewable energy company, you’ll want to fully wrap your head around cryptocurrencies before investing in a pure-play crypto company.
2. Coinbase’s role in the future of crypto
If you believe there’s a future for cryptocurrencies, the next question to ask yourself is whether Coinbase is positioned to capitalize on cryptocurrency’s popularity. This is where investors might perform a fundamental analysis as they would with any other public company: studying the company’s revenue, earnings, user growth, competition, management and dozens of other factors.
But investing in Coinbase comes with a Catch-22: If you fully believe in cryptocurrency — that is, believe in the applications and value of a decentralized public ledger — then do you have confidence in Coinbase, which is itself a centralized company?
In addition to the Coinbase app, the company does offer its Coinbase Wallet separately, which lets users store their own cryptocurrencies and explore decentralized applications. However, Coinbase Wallet only charges fees to cover the transaction costs it incurs, not the revenue-generating per-transaction fees of the primary Coinbase app.
3. What you can afford to invest in Coinbase
When it comes to actually investing in Coinbase, the same rules apply for buying equity in any company: There’s inherent risk, and you should invest only an amount you can afford to lose. Moreover, don’t invest any cash you might need in the near future, say for at least the next five years. Building in this buffer will give you time to potentially recover from any near-term drops in the stock price.
Lastly, if you’ve yet to start a long-term, index fund-based investment plan, most financial advisors would suggest funding such an investment before diving into the stock of a company that has recently gone public — or any individual stock, for that matter.
But once Coinbase has gone public, and if you decide it’s an appropriate investment for your portfolio, you can learn how to buy stocks here.
The author owned Bitcoin and Ethereum at the time of publication.