Coinbase’s recent S1 filing was hailed as a turning point.
Perhaps most incredible, the private markets valued the company at around $ 100 billion, ahead of the most established traditional exchanges. And that’s quite a head start! If we look at the traditional exchanges, the Hong Kong HKEX was one of the more robust ones that was strong enough to attempt a takeover of the London Stock Exchange last year. Currently, the market capitalization is only 75 percent of the price before Coinbase went public.
Even cryptocurrency enthusiasts may be wondering if this number is a little overrated. The short answer is, like much else in digital asset and fintech, this rating is largely based on forward-looking factors. However, if you look at the S1 filing, the numbers aren’t really that unrealistic.
With 2020 sales of $ 1.3 billion, Coinbase is ahead of Nasdaq’s Market Services segment and half of HKEX. What is striking is the sales growth of 240 percent compared to the previous year. Even with ongoing liberalization of the Chinese markets, it is unlikely that HKEX will improve exponentially over the already impressive growth of 18 percent over the previous year.
And that is almost certainly the reason for Coinbase. Cryptocurrency is still an emerging market that is in large part driven by retail customers. In terms of margins, Coinbase does not do badly either, with a net profit margin of around 33 percent – well below HKEX’s 77 percent margin, but quite reasonable for an early-stage company.
The bears have a lot to offer too. And I won’t go into all of the risk factors as the regulatory challenges and volatility of the cryptocurrency itself are well understood. What is interesting, however, is the upcoming challenge for centralized exchanges within the cryptocurrency space.
UniSwap is one such contender. It is a decentralized exchange that works without a central authority. Indeed, many Decentralized Financial Exchanges (DeFIs) like UniSwap and Kyber, and banking and credit protocols like AAVE, could potentially usher in a paradigm shift for the whole concept of an “exchange” as we know it. Uniswap’s trading volume has grown exponentially and has already enabled cryptocurrency worth $ 100 billion in its lifetime (much of it in 2020).
Time will tell whether or not Coinbase lives up to its pre-public review frenzy, but there seems to be a very realistic chance that this is the start of a bigger trend where cryptocurrency exchanges are catching up or even replacing traditional ones.
This is a guest post by Muneeb Jan. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.