South African-based crypto-currency players are excited about the landmark listing of the US’s biggest exchange, Coinbase, on the Nasdaq, and believe the move will spur regulation of the burgeoning industry.
Coinbase yesterday made a dramatic debut on the Nasdaq, as digital currencies such as Bitcoin continue to surge in value.
The crypto platform was on Wednesday valued at $86 billion at the end of its Nasdaq debut trading, with its valuation soaring as high as $112 billion through the day.
Coinbase is an American company that operates a crypto-currency exchange platform that operates remote-first without an official physical headquarters.
The company was founded in 2012 by former Airbnb engineer Brian Armstrong and ex-Goldman Sachs trader Fred Ehrsam, and as of March 2021, was the largest crypto-currency exchange in the US by trading volume.
Coinbase yesterday went public on the Nasdaq exchange via a direct stock listing.
In its final earnings release before its 14 April direct listing, the company reported a nine-fold increase in Q1 revenue, to $1.8 billion, up from $190.6 million the previous year.
Credible industry
Wiehann Olivier, partner and digital assets lead at Mazars in SA, says the listing of Coinbase on the Nasdaq adds a fair amount of credibility for the industry, showing current and future investors of crypto-currencies that digital currencies and virtual asset service providers are able to operate in a regulated environment.
“Many believe that regulations in the crypto industry will be the next logical step towards mass adoption,” says Olivier.
The price of cryptos such as Bitcoin has seen a meteoric rise in value after being endorsed by multinational companies such as Tesla, Mastercard, Visa and PayPal, among others.
At the time of writing, Bitcoin was trading at $63 000.
“What Coinbase is doing is groundbreaking for the industry and virtual asset service providers that facilitate the purchase, sale and even staking of crypto-currencies,” Olivier notes.
However, he says, there is a lot of hype around the listing that may cause the market value of Coinbase to be overstated as a result of this sentiment, but the dust will settle and more virtual asset service providers will follow in the footsteps of Coinbase.
He believes the listing goes a long way to increase trust in the crypto ecosystem and give investors the comfort they need to be able to invest in digital assets.
“The US is at the forefront when it comes to regulations, so I believe there will be ‘growing pain’ amendments to current regulations and additional regulations. We must not forget that regulation in the industry is a step in the right direction, as this will increase credibility of the industry and make it a safe environment for investors and all stakeholders. I hope this opens the eyes of South Africans to see what the benefits are of having a regulated environment and what it could mean for a country’s economy.”
Farzam Ehsani, CEO and co-founder of VALR, concurs, saying with the Coinbase listing, regulatory frameworks across the world are coming into existence for the crypto industry, South Africa included.
“The Coinbase listing is a landmark moment for the crypto industry,” says Ehsani. “The fact that nearly all of its revenue comes from crypto-currency trading, and it is now one of the most valuable financial institutions in the world, and several times the valuation of the most valuable financial institution in Africa, speaks to the increased adoption and acceptance of crypto as an asset class worldwide.
“The Coinbase direct listing just emphasises for anyone that still has any doubt whatsoever that crypto is here to stay.”
Shift in focus
Marcus Swanepoel, founder and CEO of Luno, comments that the Coinbase listing is very positive for the industry, as it will increase trust and transparency.
“The focus has been on the crypto-currencies rather than the businesses built around them but we can now see that these businesses are large and sophisticated,” Swanepoel says. “There’s still some distrust around the crypto industry, and having a public company of this size will showcase that this is not just an asset class to take seriously but there are also related businesses to take seriously.”
He points out that another benefit of a large crypto initial public offering is that increased access to crypto services will lead to more people buying crypto.
“Luno added almost a million new South African customers during 2020, and over 250 000 so far in 2021. With 300% year-on-year growth compared to January 2020 and $8.3 billion in transactions worldwide, interest in crypto is rising exponentially. Luno processed nearly $3 billion in volumes in SA last year, and was already above this number at the end of March.”
Swanepoel believes that as regulators see these are serious businesses and recognise it as a serious sector, the process of regulation will be accelerated.
Some territories already have licensing regimes in place; for instance, Luno is already regulated in Malaysia and Coinbase is regulated in New York State, he notes.
“Most legitimate exchanges like Luno and Coinbase are self-regulated in the absence of formal regulations. This means that huge operational changes won’t be necessary for exchanges that are pro-regulation and it will be really good news, but it will sift out players who are skirting regulation. Luno is in favour of regulation to move the industry forward.
“Although the investment and trading narrative is prevalent in the crypto economy, we are seeing movement in the broader environment. New technologies and products are being built around borrowing and lending, transactions of various types. I believe this will see an increase in transactional use cases. In a few years, crypto will be used in day-to-day lives,” Swanepoel concludes.
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