ETF investors are seeing an explosion in Coinbase-listed crypto investments
Brian Armstrong, Co-Founder and CEO of Coinbase, speaks at TechCrunch Disrupt SF 2018.
Steve Jennings | Getty Images for TechCrunch
The upcoming direct listing of Coinbase, which is planned for Wednesday on the Nasdaq under the symbol COIN, is inspiring a broad base of the investment community outside of the usual cryptocurrency crowd.
“Coinbase is going to blow people away,” said Matt Hougan, chief investment officer at Bitwise Asset Management, the pioneer of the first cryptocurrency index fund. “I think it will force traditional finances to grapple with the phenomenal growth that is taking place in crypto.”
It’s not hard to see why. Coinbase is likely the biggest beneficiary of the cryptocurrency revival. It had 56 million verified users with $ 1.8 billion in revenue in the first quarter alone and a value that could be anywhere between $ 50 billion and $ 100 billion.
That’s an extraordinary valuation for an exchange of any kind. In contrast, Intercontinental Exchange, which operates the New York Stock Exchange, has a market cap of $ 65 billion, while Nasdaq has a market cap of $ 25 billion.
This type of valuation is very popular with the investment community – and especially exchange-traded fund investors.
Largest pure crypto game
Crypto assets have had the same problem as other hot commodities (like pot or space) in the past: high interest with a notable lack of investable assets. However, Coinbase will go a long way towards solving this problem.
“Coinbase will be the largest public pure cryptocurrency company,” said Matt Kennedy, senior IPO market strategist at Renaissance Capital, who operates the Renaissance Capital IPO ETF (IPO). “I assume that every crypto ETF wants to (or has to) own it at some point, and it is possible that our ETF will be the first to own it.”
It is similar with Christian Magoon from Amplify, who runs the Transformational Data Sharing ETF (BLOK), which focuses on blockchain technology.
“Because we are actively managed, we can buy it as soon as it goes public and we expect it will be in our portfolio,” said Magoon.
Other tech ETFs, notably Cathie Wood’s ARK Fintech Innovation ETF (ARKF) as well as Global X FinTech ETF (FINX), are likely to be buyers as well, and that’s just the beginning. “You will see how many more ETF firms apply for crypto funds,” said Magoon.
With ownership of crypto by individuals and institutions still relatively low, many believe that Coinbase’s valuation will encourage more private companies to go public.
“I think we’re going to have a gold rush for crypto stocks as investors realize how fast the companies in the crypto ecosystem grow,” Hougan said.
Michelle Bond, a former senior counsel with the SEC who is now CEO of the Association for Digital Asset Markets, an association of companies in the digital market, said the Coinbase listing will “break headlines as it needs to be approved by a traditional Financial regulator that ensures transparency, integrity and disclosure. “
This, of course, means more players are coming, including high profile competitors. For example, Bakkt Holdings, a digital asset marketplace owned by Intercontinental Exchange, has entered into an agreement to combine with a SPAC, VPC Impact Acquisition Holdings.
Will the SEC finally approve a Bitcoin ETF?
While there are Bitcoin ETFs in the US, they don’t directly own Bitcoin. You own portfolios of stocks that are believed to have exposure to blockchain technology.
A Bitcoin ETF owning Bitcoin is a long-awaited dream of crypto investors as it will greatly expand the class of potential owners.
“A Bitcoin ETF is an easy, simple and efficient way to own Bitcoin,” said Som Seif, who runs the Canada-traded Purpose Bitcoin ETF. “Just like gold, the storage and safekeeping of Bitcoin is unique. An ETF solves this problem. It is also like a seal of approval: there is institutional support. The GLD [Gold ETF] changed the world when it came out in 2004. It made it easy to own gold as an asset class. ”
He assumes that a bitcoin ETF will do the same for bitcoin.
A few weeks ago, the SEC confirmed receipt of Van Eck’s Bitcoin ETF application, which opened a 45-day review period. At the end of this period, the SEC must either approve, deny, or extend the review period. Several other companies, including Fidelity, have also applied for a Bitcoin ETF.
Most observers believe the SEC will extend the review period. The maximum period is 240 days.
“The commission doesn’t like doing new things, and if something falls into that category, the commission gives agita. So the attitude is, ‘Let’s take the maximum time,” said a longtime SEC observer who spoke about it Condition of anonymity, he works in a sensitive job in the crypto industry.
Most Bitcoin watchers, however, believe that the end of 2021 could finally be the year a Bitcoin ETF is approved.
“The biggest potential change is [SEC Chair nominee] Gary Gensler, “Magoon said, noting that Gensler has taught cryptocurrencies and appears to be more receptive to Bitcoin filing. He also noted that SEC Commissioner Hester Peirce, a Republican, was also an advocate of a Bitcoin ETF.
The biggest difference, however, can be in improvements in the security of the Bitcoin universe.
In a 3: 1 decision in 2018, the SEC rejected an application by the Winklevoss brothers for a Bitcoin ETF for the second time. The SEC specifically said it was concerned about extreme price volatility and fraud in cryptocurrencies. It has also been found that 75% of bitcoin trading overseas is in unregulated forex that could be manipulated.
All Bitcoin watchers agree that the SEC needs to be convinced that fraud and tampering issues have been fixed.
Hougan believes the crypto market has come a long way to address these concerns.
“A few years ago there wasn’t a regulated futures market, now there is and the volumes are much larger,” said Hougan. “There were also no regulated custodians with insurance, now there are. We have made great strides, whether we made it over the goal line is not clear, but we are getting closer.”
Matt Hougan, Chief Investment Officer of Bitwise Asset Management, and Christian Magoon, Head of Amplify Transformational Data Sharing ETF (BLOK), an actively managed portfolio focused on blockchain technology, will be guests on CNBC’s “ETF Edge” at 1:00 pm ET be on Monday and on “half time report” at 12:35 pm