ETFs Await Coinbase IPO, Bitcoin Proxy

April 09, 2021

Bitcoin prices maintained their position near record highs this week. The $60,000 level continued to act as resistance, but traders were comfortable buying just below that mark.

Meanwhile, ether notched fresh all-time highs on Tuesday, when prices got as high as $2,150, following through from their breakout last week.

Bitcoin’s market cap now stands at $1.1 trillion, compared with a $239 billion market cap for Ether. The total market capitalization for all cryptocurrencies stands at around $2 trillion, according to CoinMarketCap.

See Cryptocurrency Market Value Tops $2 Trillion For The First Time

 

Bitcoin

Ether

 

Credit: [email protected]

 

Blockbuster Debut

What’s the one company that has benefited the most from the boom in cryptocurrencies? Few people would question that it’s Coinbase, the crypto trading platform that’s going public next Wednesday. Just look at the jaw-dropping sales and earnings figures the company put out this week ahead of its public debut on April 14:

Revenues in Q1 totaled $1.8 billion, nearly 10x the sales of the year-ago quarter. Net income during the quarter was $765 million at the midpoint of the company’s estimates, up more than 20x from the $31.9 million the company made in the year ago quarter.

Verified users on the platform totaled 56 million, while assets on the platform were $223 billion, representing 11.3% of all crypto assets worldwide.

Given how profitable Coinbase has become, it’s no surprise that the company has opted not to raise money when it goes public.

Instead, the firm will do a direct listing, meaning it won’t be raising any funds from institutional investors the night before it begins trading. Instead, it will open like any other stock via the exchange’s opening auction mechanism that matches supply and demand.

No Lockup May Stifle Spikes

Unlike most IPOs, there will be no share lockup, which should result in more shares for sale and a smaller share spike than would be the case with a traditional public offering. That said, there will be plenty of demand for those shares—analysts estimate the firm could fetch as much as a $100 billion valuation on its first day of trading.

Bulls say that valuation is justified based on Coinbase’s tremendous growth. Bears counter that the company is highly leveraged to bitcoin and ether prices, leaving it vulnerable to a decline in those cryptocurrencies.

In any case, this will be a widely watched stock next week, and one that will surely find itself in many ETFs in the months to come—starting with IPO funds like the Renaissance IPO ETF (IPO) and the First Trust U.S. Equity Opportunities ETF (FPX)—and then perhaps fintech-focused ETFs like the ARK Fintech Innovation ETF (ARKF) and the Global X FinTech ETF (FINX).

See Coinbase Announces First Quarter 2021 Estimated Results And Full Year 2021 Outlook

Grayscale 100% Committed To Bitcoin ETF

Don’t think that the launch of a U.S.-listed bitcoin ETF will spell the end of the Grayscale Bitcoin Trust (GBTC). In fact, GBTC itself will be converted into an ETF at some point, according to a blog post from issuer Grayscale published this week.

Grayscale said that it is “100 % committed to converting GBTC into an ETF,” and indeed, the firm would have already done so if it were able. But the regulatory environment hasn’t been kind to any potential crypto ETFs, so the firm, like others, has had to wait.

If and when the SEC does finally open the doors to a bitcoin ETF, GBTC, which currently has a 2% annual fee, will seamlessly make the transition. “When GBTC converts to an ETF, shareholders of publicly traded GBTC shares will not need to take action and the management fee will be reduced accordingly,” Grayscale said.

Grayscale’s blog post may be an attempt by the firm to shore up the price of the trust, which has fallen to a discount to its net asset value amid competition from other products that provide bitcoin exposure, including Canadian bitcoin ETFs.

Unlike ETFs, GBTC doesn’t have an effective arbitrage mechanism to do away with that discount, and so it was last trading 11.5% below NAV.

If GBTC is able to become an ETF, that discount should quickly evaporate. Moreover, if GBTC can be among the first bitcoin ETFs on the market, it will have a big leg up on the competition, considering it already has a whopping $37.3 billion in assets under management.

See Grayscale’s Intentions For A Bitcoin ETF

What The Winklevoss Twins Are Up To

It remains to be seen whether the SEC will approve a bitcoin ETF this year, but if it does, it will have been a long road to get here. The first filing for a bitcoin ETF was made all the way back in 2013 by Cameron and Tyler Winklevoss.

Of course, the Winklevoss Bitcoin Trust never saw the light of day, but the Winklevoss twins have not stood still in those past eight years. Forbes has a good profile of the twins and what they’ve been up to.

The brothers are involved in numerous blockchain-based ventures, including their crypto trading platform Gemini and the digital art auction platform Nifty Gateway.

They see blockchain-based technologies revolutionizing industries across the board, including social media—a space they were intimately familiar with during their college days when they feuded with Mark Zuckerberg over who came up with the idea for Facebook.

“The idea of a centralized social network is just not going to exist five or 10 years in the future,” predicts Tyler Winklevoss.

See Revenge Of The Winklevii

SEC Commissioner: Regulate, Don’t Ban

Speaking on a MarketWatch virtual panel, SEC Commissioner Hester Peirce said this week that it would be foolish, if not impossible, for the government to ban bitcoin. Instead, the government should build a good regulatory framework for the crypto asset class.

The commissioner, who has been friendly to crypto, was unsure when a bitcoin ETF could come to market.

See How To Invest In Crypto and Government Ban on Bitcoin Would Be ‘Foolish’: SEC's Hester Peirce

Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2

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