For the cryptocurrency industry and early investors, the public debut of Coinbase, the largest cryptocurrency exchange in the United States, on the New York Stock Exchange on Wednesday will be a historic moment.

According to public information, Coinbase will be listed on Nasdaq under the ticker symbol COIN, with an estimated valuation of more than $100 billion through a direct listing.

Founded in 2012, the company trades in more than 50 cryptocurrencies, including Bitcoin, and currently has 56 million users, serving more than 7000 institutional customers and 115000 ecosystem partners in more than 100 countries.

In addition to trading cryptocurrency on the Coinbase exchange, users can also use the company's digital wallet to store their own cryptocurrency. In addition, the company offers a service called Coinbase Pro, which provides advanced mapping and more complex trading options.

In terms of security, the Coinbase trading platform uses two-step authentication and biometric login. In addition, Coinbase also planned ahead of time to enable the "insurance" mechanism, its cooperation with the Federal Deposit Insurance Corporation (FDIC insurance) of the United States to ensure the safety of transactions. However, Coinbase also mentioned in the prospectus that "our security measures have been breached from time to time due to human error, malfeasance, internal threats, system errors or vulnerabilities or other violations, and may do so in the future." In addition, unauthorized people try to gain access to our systems and facilities, as well as those of our customers, partners and third-party service providers, and we expect them to continue to try. "

For the first time in recent months, the total market capitalization of Bitcoin has broken through the $1 trillion mark, while the trading volume of Ethernet Fong has reached an all-time high. Obviously, it is this "east wind" that borrows Coinbase's success.

However, while the listing of Coinbase seems "timely" at the moment, for most investors, the stock is still fraught with risks.

Risk 1: Coinbase's profits are over-reliant on cryptocurrency market transactions

Unlike emerging tech unicorns such as Roblox and Snowflake, Coinbase is already profitable, leaping to $322 million in full-year net profit in 2020 after a loss of $30 million in 2019. Revenue soared 139%. In this, operating leverage played a role, and the company's revenue grew faster than costs, so profit margins expanded and profits improved.

It has to be noted, however, that as much as 86 per cent of Coinbase's revenue last year came from transaction fees, which rose 137 per cent in 2020 as the volume of cryptocurrency transactions increased by 142 per cent year-on-year. Accordingly, 2020 was also the most prosperous year for the cryptocurrency market, during which the price of Bitcoin quadrupled from $7184 to $28972.

In other words, the boom in the cryptocurrency market contributed to the success of Coinbase, but investors need to be wary of it, too-when the cryptocurrency crashed in 2018, the price of bitcoin fell from $13850 to $3747, a plunge of more than 72 per cent. In that year, Coinbase's trading volume fell by more than 80 per cent, and the number of trading users fell by 67 per cent over the same period.

Moreover, of the high cryptocurrency transaction costs, 56% of the transaction fee income comes from bitcoin and ethernet square.

As an exchange, traditional exchanges such as Chicago Mercantile Exchange and Intercontinental Exchange are often affected by trading activity volatility, but these traditional exchanges tend to have a wider variety of services and products. The impact of any single product on its volatility will be minimized. However, in the volatile cryptocurrency market, it is hard to say that Coinbase will not encounter extreme conditions and lose money again.

Risk 2: there is a bubble in Coinbase valuation

There is no doubt that Coinbase, the largest cryptocurrency trader in the United States, has something that investors trust and like, and the exchange holds more than 12% of the world's cryptocurrency assets. As an industry leader, the company also has a justifiable market position.

Looking ahead, Coinbase does have explosive growth potential and is expected to allow the company to take advantage of the momentum to expand its market share.

Investors should also note, however, that Coinbase's direct IPO is expected to be valued at $100 billion, or 77 times its revenue. That's four times the market capitalization of Nasdaq, which currently has a market capitalization of $25.818 billion.

Investors who are bullish on Coinbase might say that the company's historical growth rate and prospects are exciting and that its valuation is reasonable. However, if the company fails to meet the optimistic expectations of investors, valuations are prone to collapse.

Risk 3: Coinbase still faces greater policy risks

In its prospectus, Coinbase also noted "serious regulatory uncertainty" as one of its main concerns and stressed that regulators around the world were stepping up scrutiny of cryptocurrencies.

The company recently agreed to pay $6.5 million to settle charges with the Securities and Exchange Commission (SEC), which said it reported misleading information about its trading volume, but the company did not admit to regulators' allegations.

Regulatory issues have been the sword of Damosbury hanging over the cryptocurrency market. Earlier this week, CEO Jesse Powell of Kraken, one of the world's four largest cryptocurrency exchanges, warned that governments around the world might restrict the use of Bitcoin and other cryptocurrencies, saying: "I think there may be some crackdowns and the regulatory uncertainty around cryptocurrencies will not disappear any time soon. The United States, on the other hand, is more short-sighted than other countries and is sensitive to the pressure of traditional companies such as banks. "

It should be noted that prior to this, U. S. Treasury Secretary Yellen, European Central Bank President Lagarde and other officials have issued warnings against illegal activities such as bitcoin money laundering. The US government recently proposed an anti-money laundering rule that requires individuals who hold cryptocurrency in their digital wallets to conduct identity checks when conducting transactions of $3000 or more. In addition, the Indian government is also considering a ban on encrypted currencies, which could result in penalties for anyone who holds or trades encrypted currencies.

Total knot

It is certainly not a sensible thing to barge in at the beginning of Coinbase's listing. In the long run, the stock is still inextricably linked to cryptocurrency growth, its volatility is obvious regardless of the growth prospects of the market, and the company's current valuation is high enough to deter many investors.