Coinbase's Listing Tomorrow: Why COIN Doesn't mean Bitcoin

Learn what Coinbase shares likely get you and how that differs from actually owning Bitcoin.

Ian LeViness

2021-04-14 6 min read

What is it about Bitcoin that continues to take the world by storm? Is it simply the fact that it's a bet against the traditional financial system since it exists outside of it? To me, this is only the tip of the iceberg. To truly understand Bitcoin's promise, it helps to look at it through different lenses(in different contexts), then bring those contexts together into a full value proposition.

Because I'm writing this on the eve of Coinbase's historic direct listing, I'd like to start there.

Back in 2013, the cryptocurrency exchange raised $5 million from Union Square Ventures to fund the build-out of its' platform, which was the largest raise for a Bitcoin-focused company at that time. Admittedly though, there also weren't many other cryptocurrencies or cryptocurrency exchanges at that time either. In 2017, they went on to raise $100 million, while being valued at $1.6 billion. Fast forward to today and Coinbase has reportedly been most recently valued at $100 billion. Even so, Delphi Digital, a firm known for producing cutting edge research reports from qualified analysts on the cryptocurrency space, pointed out that futures markets on Coinbase stock place its' expected valuation at listing at closer to $120 billion

However matters turn out, one thing seems clear. 

Analysts from both the traditional finance and cryptocurrency spaces believe that Coinbase's launch on the public markets will be the next major tipping point for cryptocurrencies in the eyes of the general public. October of last year was the snowball that started a sizable institutional avalanche into Bitcoin. Still, that avalanche hasn't yet resulted in a major influx of new investors from the retail space, i.e., average investors. From everything that I've seen and all of the opinions I've aggregated since I begun my journey in crypto back in 2016, I believe that Coinbase being the first crypto exchange to ever go public(via a direct listing, i.e., appearing on the public markets on its' chosen day) could be the spark that lights the true fire, pushing investors from all ends of the spectrum to more seriously consider crypto.

As CoinDesk's Nikhilesh De and others have pointed out, the crypto company's direct listing marks a major move towards "further legitimacy for the crypto industry at-large." 

Even now, hours before the event, more traditional investors are indicating that they believe Coinbase will give traders, companies, and average citizens alike a new vehicle to gain exposure to crypto. Some people appear to have taken this to mean that buying shares of crypto companies will allow them to experience the highs of the industry without the lows. In my experience, this is inaccurate, both due to how market volatility functions in general, as well as the fact that shares and cryptocurrencies exist in fundamentally different arenas. In other words, stocks and Bitcoin are different and will always be different, no matter if both come from the crypto-sphere or even if both land on the blockchain.

Read on to find out how and why that's the case. 

What Buying COIN Gives You

Coinbase stock, under the ticker "COIN," will trade on the public markets, more specifically under the Nasdaq banner, just like many other major stocks, state-side. So, when you buy a share of Coinbase, you get a share of the company, just as with any other stock. At no point does buying COIN give you any sort of extra access to the crypto markets. If Coinbase's stock price rises, this is likely because, just as with other stocks, people expect the company to grow further over time. In a general sense, in the traditional markets, if you imagine that people's predictions on the future success of companies including where they think their earnings will go play a major part in pricing stocks, then you've got a good tool for your investing toolset. 

In the end, as Coinbase stock debuts tomorrow, keep in mind that owning COIN, doesn't mean owning Bitcoin or any other cryptocurrency. It more accurately, likely means owning a share in a cryptocurrency exchange and its' present and future successes. Furthermore, when you buy a stock, you don't really own it. Your custodian does. If you're familiar with Robinhood, Fidelity, TD Ameritrade, or any other USA-based broker, then you're already familiar with the term. Typically, a custodian is a broker or bank who allows you to buy, sell, and trade stocks with them, but the only thing you ever really own is an IOU. Your broker owns your stock. Unless you have the physical paper that represents the share of stock in hand, that will likely always be the case(until stocks are widely tokenized, which we'll discuss in later posts). 

None of what I've mentioned here should be taken to mean that I think you should or shouldn't buy Coinbase stock. It's just important to keep in mind the facts of what you're getting when you go to your broker with the intention of buying some COIN.

What Buying COIN Gives "Them"

Since Coinbase actually isn't doing an Initial Public Offering to be listed via Nasdaq, from the get-go it'll be just like any other stock that's publicly traded today. When someone buys a share, Coinbase gets cash in return and therefore, becomes more liquid. If you're not familiar with what liquid means in this context, just think "they have more cash on hand."

What Buying Bitcoin Gives You

If you were to purchase even a fraction of a Bitcoin(yes, you can do that!), however, you would have direct exposure to its' price movements. Furthermore, buying any amount of Bitcoin means truly owning that amount of Bitcoin, as long as you store it in a hardware wallet or comparable solution, which will be explained in future content here. Once you have your Bitcoin in your cryptocurrency wallet, which is like a highly encrypted bank account to which you own all of the rights, including the right to move the assets inside of it at any time, you effectively own a piece of the Bitcoin network. You're now betting that because of how Bitcoin works, it will persist over the long-term, similarly to how people bet on the future successes of certain stocks, based on what the companies they're tied to are doing and plan to do.

The key differences between Bitcoin, stocks, and all other assets are two-fold.

First, Bitcoin exists outside of the traditional financial system, since it is maintained by, stored on, and created by a blockchain network. Last but not least, the more that it's been around, the less it's been found to be correlated to traditional assets, making a major case for it eventually becoming one of the best hedges in history. If you don't believe me or haven't seen the relevant data yet, consider the fact that as Bloomberg analysts recently pointed out, people largely value gold as an investment because it's an "anti-fiat asset." Another way of thinking about this would be to say that it tends to move against the markets, i.e., go up when other things go down. 

Since Bitcoin came onto the scene, however, it's been held up as "digital gold," since over the long-term, it's been useful as a store of value, while also being nearly-instantly tradable. Currently, that has resulted in a long-term decoupling between Bitcoin and gold, with them trending close to zero in correlation for the past year. Still, correlations are only half the battle. Winning the trust of the people of the people is the other. Only time will tell whether Bitcoin ever reaches anywhere close to where gold has come in that respect. Still, it's early yet and the pull of decentralization as well as the promise of endless portability are already beginning to bring just about everything onto the blockchain. 

As to what Bitcoin gives "them," the answer is not too much. The only fees that you pay are either to exchanges for making it easy for you to buy Bitcoin and mining fees to incentivize users with specialized hardware to continue keeping the network secure. 

If you enjoyed this post and you plan to continue looking into cryptocurrencies, reach out to me any time on Twitter or via email @ blockdemiclab@protonmail.ch. For the past three years, I've specialized in breaking down just about every aspect of the industry to founders, managers, and the general populace. Next time, we'll take a step back and I'll share a glossary with you to help you begin your journey in crypto with confidence. Until then, I hope that this helps anyone who's trying to understand the differences between buying Coinbase stock and actually buying a bit of crypto, as well as the basics of why Bitcoin matters.

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