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Coinbase Debuts On Nasdaq – Bullish or Bearish Bitcoin?

Posted: Friday, April 16th, 2021

Estimated Reading Time: 3 minutes

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Coinbase, one of the largest crypto exchanges in the world, made its debut on Nasdaq this week. The much-awaited event by the cryptocurrency community valuated the company at $100 billion, dwarfing the valuation of “fiat” exchanges. Bitcoin and other cryptocurrencies started the week with a bid tone, trading close to all-time highs or even posting new ones.

It is a week of victory for crypto-assets, especially for Bitcoin. Hate it or not, Bitcoin is the driver in the crypto universe.

Have we seen so far Bitcoin declining for a week and other altcoins moving in a bullish trend? Or the other way around? The quick answer is no. As such, the success of the cryptocurrency market depends very much on Bitcoin’s success.

Coinbase Bitcoin

A quick look at Coinbase’s consolidated statement of operations for the last two years ending December 31, 2020, reveals a strong rise in net revenue from one year to another. The company reported that it has fifty-six million users, most of them active traders, and adds about thirteen thousand new ones each week.

What the table above does not show is the frenzy in the cryptocurrency space that took place in the first quarter of the new year. Let’s all remember that Bitcoin’s price doubled from $30,000 to over $60,000 in Q1 2021, likely triggering even more interest in the cryptocurrency space.

At the current valuation, Coinbase is worth more than the company owning the New York Stock Exchange, reflecting the increased adoption of crypto-tokens as new, digital asset classes. However, one may argue that this is just another company leveraged in the crypto-bubble universe, depending a lot on the future price of Bitcoin.

Where would Coinbase be today should Bitcoin’s rally did not happen?

Dependency on Bitcoin Rising

Coinbase is not the only company to ride the crypto (Bitcoin) wave. It may be the first one to be involved, and this is its chance to take some chips off the table by selling shares to the general public.

It may very well be the start of a long journey on the stock market. However, one cannot stop wondering if Coinbase would still perform in a Bitcoin bearish market? Moving forward, it would be interesting to assess $COIN’s correlation with Bitcoin’s price. If the two correlate like Tesla and Bitcoin below, we have just another company following Bitcoin’s rise and fall. That’s it—nothing else.

Bitcoin Rise

There are over 5,000 cryptocurrencies worldwide – a staggering number by all means. As of March 2021, Bitcoin’s market capitalization exceeded  $1 trillion, Ethereum coming in second place with a little over $200 million. In top ten, we see other altcoins such as Cardano, Litecoin, Dogecoin (don’t get me started on Dogecoin, please!), or Chainlink.

What I find strange is that these are crypto “currencies”, yet they fail at the latter part of the definition. They all fail, Bitcoin included, at being a stable unit of account. Period.

I keep coming back to Bitcoin because it is the centerpiece to all the crypto universe. If it is one coin that can cause the domino to fall, that’s Bitcoin.

Isn’t this the very definition of systemic risk – when one event may trigger chaos in financial markets?

Coinbase’s listing does nothing else but increases the dependency on Bitcoin. The correlations are so strong that one failure (say, Tether), can bring the domino down – Coinbase, Tesla, MicroStrategy, and others included.

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