Coinbase's listing on Nasdaq last week is likely to give institutional investors pause for thought, drawing crypto sceptics closer over the long-term but also sounding alarm over the short-term risk from drawdown in the price of crypto.
For early investors in Coinbase, including some in Asia, however, there were fortunes to be made last Wednesday (April 14) as the cryptocurrency exchange debuted on the Nasdaq at $381 a share, with a valuation of $85.8 billion.
While the stock price has since softened to $337 as of Tuesday (April 20), investors remain bullish on cryptocurrency-related investments.
“Coinbase and the general crypto ecosystem is still in its infancy and growing. I would assume that some [of the early investors] would have liquidated, maybe portions of that investment,” Benjamin Quinlan, chairman of the fintech association of Hong Kong told AsianInvestor. “But I think many of those investors are still fundamentally bullish on the crypto market, I wouldn't see them exiting all of it.”
Venture capitalists (VC) and firms that had participated in Coinbase’s earliest rounds of funding saw their investments leap by multiples of thousands on the debut. The original issue price per share for its series A funding was 19 cents and $1 for series B.
Filings on the US Securities and Exchange Commission (SEC) showed that several VCs made hundreds of millions, and in some cases billions, after they sold portions of their stock.
For instance, Marc Andreessen, who was the lead investor in the firm’s series B funding in 2013 and held more than 10% of the firm’s shares, sold 1.18 million shares for $449.2 million.
Another early investor Union Square Ventures, a VC firm led by Fred Wilson, sold 4.70 million shares for $1.82 billion.
Several Asian institutional investors also recognised potential in Coinbase early on. Japanese bank Mitsubishi UFJ Financial Group had led a $10.5 million series C funding, which issued shares at $2.76 per piece.
Singapore’s GIC also reportedly participated in Coinbase’s fund raising round in 2018 (presumably series E), according to Bloomberg. Series E shares were issued at $36 per share, which meant that GIC would have earned a 10-fold return from the firm’s listing.
GIC representatives did not explicitly say they had invested in Coinbase, but the sovereign wealth fund did post a congratulatory note on LinkedIn on the day of its listing, saying it was a “long-term investor” in the cryptocurrency exchange.
A GIC spokesman declined to comment on how much had been invested or whether the fund planned to sell or hold the stock.
“Technology companies have had a place in our portfolio since our early days – in fact, our San Francisco office was set up from as early as 1986 and we went into private venture capital earlier than most institutional investors,” the spokesman told AsianInvestor.
Despite the apparently eye-watering returns for Coinbase’s pre-listing investors, there are some who feel that the firm’s share performance fell short of expectations.
“In pre-market trading - platforms that trade derivatives around the expected listing price – [Coinbase] was trading at $420 to $450. They were looking at $100-140 billion valuation,” said Henry Chong, chief executive of fintech firm Fusang, and director of family office service provider Portcullis Group.
“There was more retail investor interest in Uber, Airbnb, Doordash. Why did Coinbase, which claims to have 56 million customers, have no interest?” he told AsianInvestor.
Sovereign wealth and pension funds have typically said they plan to steer clear of cryptocurrencies although family offices have shown growing interest. The Canadian Pension Plan Investment Board (CPPIB) and GIC are among asset owners that remain sceptical over cryptocurrencies.
Nevertheless, asset owners have shown a willingness to invest in cryptocurrency’s underlying technologies such as blockchain, and have shown interest in digital assets such as central bank digital currencies (CBDCs) and digital bonds.
Korea’s $650 billion National Pension Service (NPS), for example, reportedly has exposure to cryptocurrency exchanges through two VC funds.
The volatility of cryptocurrencies such as Bitcoin and its links to criminal activity such as money laundering are oft-cited reasons for asset owners avoiding the asset class.
Bitcoin soared to a high of $63,000 on April 13 - 10 times its price the same time last year. However, it fell 15% on Sunday (April 15) to $51,000 after reports that US regulators were planning a crackdown on digital assets.
Quinlan, meanwhile, remains positive about institutional interest in digital assets.
“We're in an everything-bubble right now. If there is a correction in broader equity markets, you'll probably see it knock investments in everything… Notwithstanding a big correction and loss of investor confidence, [we will see] institutional growth in this asset class,” he said.
“I think that the narrative is only going to get stronger because institutions are starting to develop ETF products – Canada launched their Bitcoin ETF and approved it. The ecosystem and financial products around [crypto] is growing, custody solutions are maturing quite rapidly, insurance on crypto is becoming a more mature industry… So that bodes well for institutional growth.”