Coinbase Comes Crashing Down to Earth

  • Coinbase (-5.95%) now trading at close to its indicative direct listing price on Nasdaq – even though not an indicative of its market cap, is psychologically significant for investors 
  • Cryptocurrency exchange Coinbase has struggled of late as it becomes increasingly apparent that its fortunes are tied very closely with those of Bitcoin, which has flatlined in recent trading, in favor of more speculative cryptocurrencies
The proposition is simple – it’s the Levi’s trade – if you missed the gold rush, just sell the pickaxes and shovels, or in the case of Levi Strauss, the cotton jeans, to the gold miners who still think that there’s gold to be had in the hills outside San Francisco.
Which is why investors were excited about Coinbase Global’s direct listing on Nasdaq.
Even if you don’t think much about cryptocurrencies, they’ve become too big to ignore and there’s an inescapable elegance to the argument that instead of investing in digital assets, betting on the companies that facilitate their trade ought to be a good gamble.
But as it turns out, the cryptocurrency world and the investment world for that matter, offers plenty of alternatives.
As investors fled the more speculative and risky segments of the market, including SPACs, Coinbase Global sank to just a hair above its reference price for its direct listing.
And although the direct listing price was more an arbitrary indicator of where trading should start on Nasdaq, Coinbase is now trading well below its last price in the secondary market before its listing – US$350.
Yet Coinbase’s slide comes even as investors are pouring into extremely speculative cryptocurrencies, from Dogecoin to Binance Coin – tokens that Coinbase doesn’t offer.
But anyone who knows anything about the cryptocurrency space will know that Coinbase isn’t the only show in town, nor is it the biggest market for swapping digital assets.  
Because Coinbase relies so heavily on the most established cryptocurrencies, especially Bitcoin, for the bulk of its trading fee revenue, sluggishness in the benchmark cryptocurrency has led to a declining share price for Coinbase.
With the bulk of Coinbase’s traffic so closely intertwined with the fortunes of Bitcoin, the inability of Bitcoin to vault the US$60,000 level of resistance has resulted in lower volumes and Coinbase is now down over a fifth from its listing day.
Then there’s the issue of alternatives.
After Coinbase’s listing, there are murmurings that other exchanges may follow suit, including an unlikely candidate Binance, which according to insiders has allegedly been circulating a deck to feel out investor appetite for its IPO in private.
Because your pickaxes and shovels are only as valuable as the fact that no one else is selling them, perhaps Coinbase should consider cotton jeans? 

Novum Digital Asset Alpha is a digital asset quantitative trading firm.

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