Coinbase IPO: How investors can get in before it lists
The predicted US$100 billion listing happens 14 April, but buying shares isn’t the only investment choice.
- Biggest cryptocurrency exchange in US lists on NASDAQ on 14 April 2021.
- Derivatives exchange FTX is offering investors a way to speculate on Coinbase’s launch value through its CBSE product.
Major cryptocurrency exchange Coinbase is launching an initial public offering (IPO) on 14 April 2021 through a direct listing on NASDAQ.
It’s expected to be one of the biggest IPOs this year, given that Coinbase is the largest exchange in the US and the second-largest in the world, and the massive growth in cryptocurrency values in the early months of 2021.
Some estimates suggest Coinbase could be valued between US$70 billion and US$100 billion.
Ahead of the listing, Coinbase said it had a record US$1.8 billion in revenue and US$800 million in profits for its most recent quarter, from US$335 billion of trade volume across 56 million users.
Because Coinbase is listing directly on NASDAQ (using the symbol COIN), potential investors don’t have the option of getting in early through brokerages.
We also don’t know how many shares will be made available.
How CBSE lets Kiwis speculate on Coinbase ahead of listing
Kiwis looking to purchase COIN stock will have to wait until it hits NASDAQ, but those keen to speculate on the company’s valuation ahead of 14 April have another option available.
Cryptocurrency derivatives exchange FTX is offering a futures product, CBSE, which allows traders to speculate on Coinbase’s market capitalisation (total valuation of Coinbase) ahead of the IPO.
CBSE is a form of “pre-IPO contract” which tracks Coinbase’s market cap (the share price multiplied by the total number of shares). After Coinbase’s initial day of public trading, CBSE will convert into the equivalent amount of tokenised Coinbase fraction stocks. It’s effectively a bet on what the market capitalisation will be at the end of the first day’s trading.
The CBSE contracts are backed by German firm CM-Equity AG which holds an equivalent amount of CBSE in COIN shares (known as the Underlying).
Essentially traders are using CBSE to bet on the overall market cap rather than the individual share price.
Because the amount of shares that will be publicly available is still unknown, FTX has set an arbitrary figure of 250 million units of CBSE, the price of which represents the market cap divided by 250 million.
According to the trading page of CBSE on FTX “It [CBSE] tracks Coinbase’s market cap divided by 250,000,000. CBSE balances will convert into the equivalent amount of Coinbase Fractional Stock tokens at the end of Coinbase’s first public trading day.”
This is an alternate route to direct share buying, but it’s risky. FTX has given CBSE its highest “high risk” rating, calling out the potential issues in its key information document on the product:
It is not suitable for all investors and is only intended for investors who know the Product well and can bear the potential losses associated with the Product and the corresponding investment strategy. ”
If you would like to purchase CBSE, you can read our review of FTX here.
Disclaimer: FTX.com, which is a separate entity to FTX.US, allows customers to trade CBSE, which are pre-IPO contracts to track Coinbase’s market cap. After Coinbase’s first day of public trading, they convert into the equivalent amount of tokenised Coinbase fraction stocks. Not available for US customers.
Disclosure: The author owns a range of cryptocurrencies at the time of writing