Coinbase is unlike any market debut Wall Street has ever seen


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COINBrian Armstrong, co-founder and chief executive officer of Coinbase Inc.David Paul Morris | Bloomberg | Getty Images

Coinbase is poised to command an astronomical valuation when the digital currency exchange goes public on Wednesday. But ask 10 market experts how the company should be valued and you’ll likely get 10 answers.

That’s because Coinbase’s current business — the one that produced a whopping $1.8 billion of estimated revenue in the first quarter and up to $800 million in net income — is built almost entirely on the performance of bitcoin and ethereum.

Those cryptocurrencies have skyrocketed more than 800% and 1,300% respectively in the past year. As a result, Coinbase, the most popular place for U.S. investors to purchase those assets, has grown nine-fold over that stretch.

Should Coinbase hit the public market around its latest private market valuation of $100 billion, taking into account a fully diluted share count, it would instantly be one of the 85 most valuable U.S. companies.

Here’s the key question for investors ahead of the Nasdaq debut: What happens when a crypto company with historically anomalous growth, massive uncertainty, and no official headquarters clashes with the rigors of Wall Street and familiar metrics like price-to-sales and price-to-earnings ratios?

“Valuing any start-up can be challenging, but I think the issue of valuation is far more complex with a company like Coinbase,” said Natalie Hwang, founding managing partner at investment firm Apeira Capital. She doesn’t have a current stake in the company.

Predicting crypto prices has proven to be a foolhardy game. Swings can be so rapid in either direction that Coinbase has 27 bullet points in its prospectus on the volatility risks. They include changes in investor confidence, negative publicity and social media coverage, regulatory issues and service interruptions related to the technology.

Because the underlying assets that make up Coinbase’s financial story are so unpredictable, fundamental analysis of earnings quality, customer retention and efficiency doesn’t get you very far. Coinbase evangelists don’t spend much time on it.

Rather, they’re looking down the road to a future in which financial intermediaries are diminished and transactions take place predominantly on the blockchain.