IntoTheBlock looks at what the upcoming Coinbase IPO can do for the markets.
Every week, IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry.
This week we dive into the anticipated Coinbase IPO and how it is likely to affect markets. We also analyze the performance and correlations of other crypto stocks, and the implications it may have on risk sentiment for crypto markets.
Coinbase IPO Propels a Risk-On Market
Crypto markets have been roaring towards the $2 trillion total market cap. Despite the recent correction experienced in the past 48 hours, risk-on sentiment remains at least for now.
Risk-taking activity can easily be observed from the rotation in assets out of Bitcoin and into altcoins, particularly tokens with lower market capitalization.
As can be seen in the graph above, Bitcoin’s dominance is 56.3% — its lowest since June 2019. Conversely, the market share of cryptoassets outside of the top 10 is at its highest since August 2020 towards the end of the so-called DeFi summer.
The risk-on sentiment may be linked to the upcoming Coinbase IPO. Coinbase will be entering the Nasdaq through a direct listing with the ticker COIN on Apr. 14.
Coinbase also recently disclosed its Q1 earnings, where it netted $1.8 billion in revenue, surpassing the total revenue they received in all of 2020. The exchange also reported 6.1 million monthly transacting users.
The anticipated IPO will act as a major stamp of approval for crypto markets. Coinbase will instantly become the largest crypto company publicly traded in stock markets. It’s legitimizing effect has been touted by many as a point of inflection in broader acceptance of crypto.
However, Coinbase most certainly is not the first crypto company to go public. As a matter of fact, shares in crypto companies such as Marathon Patent Group and Silvergate have been outperforming the market.
While these companies have resulted in a higher return on investment in the past three months, MicroStrategy has underperformed regardless of their continuous Bitcoin investments.
Crypto-related companies such as these have unsurprisingly moved in tandem with Bitcoin’s and Ether’s price.
The high correlation between these companies’ stocks and crypto means that there is a positive statistical relationship between the two. Even for companies with consolidated revenue streams outside of crypto, such as Nvidia and PayPal, the correlation is highly strong at 0.62 and 0.54 with Bitcoin, respectively.
This trend could suggest that both Bitcoin and large tech companies are being treated as a risk-on play amid the continuing growth of stimulus in the United States. As opportunities for growth in traditional industries decreases, it is likely that more and more investors look into crypto and tech broadly for higher risk opportunities.
The Coinbase IPO comes in a pivotal moment: as Bitcoin’s price has failed to sustain above $60K, a catalyst like this could lead to new entrants coming into the market. While there is a significant amount of speculation surrounding this event and the final impact is yet to be seen, it will most certainly mark a milestone for crypto’s history.
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