The much-awaited listing of crypto exchange Coinbase will take place on Nasdaq on 14 April. As the company derives most of its value from crypto trading, the listing is expected to position digital assets at par with stocks, gold and other traditional asset class.
Instead of the conventional route of initial public offer (IPO), in which new shares are created and are underwritten by an intermediary, the company had decided to go for a direct listing, where existing shareholders can sell their shares directly on an exchange.
Coinbase has chosen Nasdaq for listing and will trade alongside tech majors such as Apple, Microsoft, Amazon and Tesla. Investing in Coinbase is an indirect way of investing in crypto assets and according to Sitashwa Srivastava, chief executive officer, Stockal, the listing has created a lot of interest among Indian investors. Stockal is a fintech that enables global investing for Indians.
“Just like IPOs of Snowflake or Airbnb, we are witnessing 30-40% rise in our support requests for Coinbase listing. Indian investors are looking at thematic access to cryptos,” said Srivastava.
Indians can participate in this listing by opening a US brokerage account on platforms that enable global investments. This will give them access to buy shares of Coinbase once it’s listed. Nowadays, one can open a US brokerage account with just a PAN card and Aadhaar card using just an app. Moreover, an investor has to register for the liberalized remittance scheme (LRS) of the Reserve Bank of India (RBI) with her or his bank.
Under LRS, an Indian individual can send up to $250,000 per year overseas for travel, education and medical care as well as for the purchase of shares.
However, as with all investments, it is important to be aware of the associated risks. With Coinbase choosing the direct listing route to go public, there are some unique features that create some potential risks.
“Unlike a traditional IPO, which is backed by underwriters, a direct listing doesn’t offer the safety of long-term external investors. This means no lock-in period for existing shareholders, which allows them to sell immediately and cash in on their returns, which could lead to downward pressure on prices. Additionally, a lack of large institutional shareholders could also create initial volatility in the share price,” said Viraj Nanda, CEO, Globalise, a platform that helps Indian investors invest in US stocks.
Investors should note that just like cryptocurrencies, Coinbase can be a highly volatile and risky asset.
According to the company’s regulator filing, due to the highly volatile nature of the crypto economy and the prices of crypto assets, the operating results will continue to fluctuate significantly from quarter to quarter in accordance with market sentiments and movements in the broader crypto economy.
“As much as 56% of all trading volume came from only two cryptocurrencies, bitcoin and ethereum, which poses a significant risk if interest in either of these currencies was to fall,” Nanda added.
For the quarter ended 31 March 2021, Coinbase reported $1.8 billion in revenue compared with $1.3 billion for all of 2020. As of March end, the company had more than 56 million verified users with a quarterly trading volume of $335 billion. The total worth of assets on the platform reached $223 billion, representing 11.3% crypto asset market share.
“Cryptocurrencies are a trend or fad-oriented assets. The current volumes, revenues and other metrics that the company is currently reporting can suddenly disappear. So, it is a very risky investment,” said Vikas Gupta, founder, Omniscience Capital, a Sebi-registered investment adviser, which also advises on foreign stocks.