Coinbase Is Unlike Any Market Debut Wall Street Has Ever Seen

Coinbase is poised to command an astronomical valuation when the digital currency exchange goes public on Wednesday. But ask 10 market experts how the company should be valued, and you’ll likely get 10 different answers.

That’s because Coinbase’s current business — the one that produced a whopping $1.8 billion of estimated revenue in the first quarter and up to $800 million in net income — is built almost entirely on the performance of bitcoin and ethereum.

Those cryptocurrencies have skyrocketed more than 800% and 1,300% respectively in the past year. As a result, Coinbase, the most popular place for U.S. investors to purchase those assets, has grown ninefold over that stretch.

Should Coinbase hit the public market around its latest private market valuation of $100 billion, taking into account a fully diluted share count, it would instantly be one of the 85 most valuable U.S. companies.

Here’s the key question for investors ahead of the Nasdaq debut: What happens when a crypto company with historically anomalous growth, massive uncertainty, and no official headquarters clashes with the rigors of Wall Street and familiar metrics such as price-to-sales and price-to-earnings ratios?

“Valuing any start-up can be challenging, but I think the issue of valuation is far more complex with a company like Coinbase,” said Natalie Hwang, founding managing partner at investment firm Apeira Capital. She doesn’t have a current stake in the company.

Predicting crypto prices has proven to be a foolhardy game. Swings can be so rapid in either direction that Coinbase has 27 bullet points in its prospectus on the volatility risks. They include changes in investor confidence, negative publicity and social media coverage, regulatory issues, and service interruptions related to the technology.

Why Coinbase going public is important for investors and the crypto market

Because the underlying assets that make up Coinbase’s financial story are so unpredictable, fundamental analysis of earnings quality, customer retention, and efficiency doesn’t get you very far. Coinbase evangelists don’t spend much time on it.

Rather, they’re looking down the road to a future in which financial intermediaries are diminished and transactions take place predominantly on the blockchain. Online marketplaces for e-commerce, travel and homebuying, they say, will use a variety of cryptocurrencies to connect buyers and sellers, with blockchain serving as the universal source of truth.

Coinbase calls it the “crypto economy,” a word that shows up 163 times in its prospectus. It portends a software-powered world of payments, trading, and all sorts of peer-to-peer transactions that take advantage of blockchain’s ability to give everything a unique identifier.

If Coinbase bulls are right, the company is at the center of a critical transformation of the internet. Some compare it to Netscape, which introduced the browser to consumers. Others look at how Amazon brought physical retail to the web or how Facebook became the way that people connect.

Matthew Le Merle, the managing partner of investment firm Fifth Era and Blockchain Coinvestors, said that tying Coinbase’s value to bitcoin would be like valuing Amazon in its early days based on book sales or placing a multiple on Airbnb five years ago by looking at its number of rental nights booked.

“You don’t think about bitcoin volatility, trading fees, and revenue,” said Le Merle, whose firm specializes in crypto and has exposure to Coinbase through investments in some venture funds. “You have to start with — what’s the