Comment: Three major impacts of Coinbase's listing: prolonged bull market, listing boom and project compliance

Wu said author | Colin Wu

Editor of this issue | Colin Wu

A few weeks ago, when discussing how long the bull market could last, Shenyu’s first reply to me was: It depends on whether Coinbase can successfully go public. And the answer to this question is now visible to everyone.

Coinbase’s IPO was by no means smooth sailing.

On March 20, the U.S. Commodity Futures Trading Commission (CFTC) fined Coinbase $6.5 million to settle the case. Coinbase has been accused of many things, including the insider trading of LTC by a former employee (rumored to be the founder of Litecoin), the listing of BCH (sued for insider trading of BCH), Ethereum-related events (the price plummeted from $317.81 to $0.1, triggering an SEC investigation), etc. In addition, Coinbase has invested in a large number of projects, some of which were launched on the exchange, and whether there was insider trading among them has been questioned.

Anyway, just when everyone was worried about Coinbase, good news finally came. Coinbase was successfully listed on April 14. As of the morning of April 15, Beijing time, Coinbase was priced at $250, opened at $380, and the stock price reached a high of $425, but then began to fall and closed at $328.

Coinbase's price fluctuations are normal. It is affected by the market conditions in the cryptocurrency world and may even be considered an ETF in the crypto world in the future. In addition, its stock investors are rarely value investors like Buffett who hold stocks for a long time. Most of them are quick in and out, similar to the behavior of the cryptocurrency circle. It is expected that its fluctuations will still be relatively severe in the future.

Nevertheless, we believe that Coinbase's listing will have the following three important impacts.

First, the listing of Coinbase will prolong the bull market. The successful listing of Coinbase and the response of the capital market prove the recognition of the crypto industry by the US government, institutions and investors. As we all know, the driving force of this round of bull market is the purchase led by US institutions and listed companies, such as Grayscale, Tesla, and MicroStrategy. The number of Bitcoins currently held by institutions may account for 8%-10% of the total.

However, compared with the overall amount of funds from institutions, the amount of money flowing into the crypto industry is still very small. As a representative of compliant exchanges, Coinbase's successful listing will make more institutions recognize and invest in this industry. Goldman Sachs just said that it is ready to provide a full range of investment services for cryptocurrencies due to the strong demands of its high-net-worth clients. In the future, Bitcoin will be completely dominated by institutions.

When a large number of institutions have not yet entered, the listing of Coinbase will push them to enter faster and raise the price. When the US monetary policy is tightened in the future, the number of institutions willing to buy Bitcoin will be relatively saturated, and institutions will also have an exit effect. However, at present, the acceptance of Bitcoin is still in its early stages, and other types of cryptocurrencies such as Ethereum are even less accepted. When the traditional bull-bear cycle changes, perhaps the support of institutions will be beyond imagination.

Second, Coinbase's listing will trigger a wave of crypto companies going public. Previously, the wave of crypto companies going public was mainly concentrated in the Bitcoin mining industry, such as mining companies led by Marathon and Riot in the United States; mining machine companies led by Canaan and Ebang (later Bitmain and Shenma); and Chinese mining companies led by BitMining and Jiucheng. However, trading companies with large profits and transaction volumes have not yet been listed.

After Coinbase's successful listing, a large number of companies that have not yet issued coins or are related to trading will be listed, so that investors, founders and employees have an exit channel. Kraken, the second largest exchange in the United States, is rumored to be directly listed in 2022. Galaxy Digital, a well-known institution, is also rumored to be seeking a secondary listing in the United States. A large number of crypto companies in the United States will seek to go public to raise funds. Many cryptocurrency companies in Greater China are also seeking to go public on the U.S. stock market. Even some projects that issue tokens are seeking to go public, such as the currently very popular "green bitcoin" Chia.

Third, the listing of Coinbase will make the entire industry lean towards compliance. We are glad to see that the chaos of ICO in 2017 is no longer there. Some relatively compliant projects have landed on Coinbase one after another, and the prices have also started to soar. LRC, ANKR and NKN launched by Chinese developers have been launched on Coinbase. This makes more project parties not regard making quick money as the only option, and there is also a way out to follow the compliance rules, which is of great help to the industry's "good money drives out bad money". If the attention of institutions spreads from Bitcoin to other mainstream cryptocurrencies in the future, this will encourage the birth of more compliant projects. Grayscale is currently setting up a large number of funds of different currencies.

However, the genes of the crypto industry also have anonymity, community, and freedom. Therefore, non-compliant centralized exchanges led by Binance and decentralized exchanges led by Uniswap still have a huge space for survival. Compliance agencies such as Coinbase will push the government to restrict non-compliant companies. This kind of squeezed involution may come when prices fall or the market is relatively saturated. At present, it is still a win-win situation.

Just as Coinbase took the initiative to communicate with F2Pool, the news headline about Biden's stimulus plan written on "Coinbase" paid tribute to Satoshi Nakamoto. "Only by going against the trend can you create a trend." Coinbase's listing is a milestone event, but the gene of Bitcoin is no longer to confront, but to become a supplement to traditional finance or even popular culture. Although Bitcoin fundamentalists will be disappointed, the industry seems to be moving towards a new bright road.