Coinbase goes public: Why it matters to advisers

Coinbase Global Inc, the largest U.S. cryptocurrency exchange, listed on the Nasdaq Global Select Market Wednesday via a direct public offering with the ticker COIN.

As Coinbase makes its public debut, financial advisers are bracing to surf the crypto wave before it crests. The listing marks a watershed moment for digital assets that advisers have historically shied away from because of volatile performance records. Yet, demand from both retail and institutional investors is set to propel cryptocurrencies toward further gains.

Digital assets on the platform are about $223 billion, including $122 billion of assets from institutions, representing 11.3% of the crypto-asset market share, according to the firm’s first-quarter earnings results. Coinbase has 56 million users on the app as the company grew revenues to $1.8 billion. Trading volume for the quarter alone rose to $335 billion. 

Bitcoin hit a record of over $64,000 on Wednesday alongside Coinbase’s public listing. The global crypto market cap clocked in at $2.24 trillion, according to CoinMarketCap.  

Coinbase’s public listing and massive valuation of about $65 billion will garner “huge amounts of attention, and thus introduce millions of people to the world of digital assets while spurring millions more investors to seriously question why they — and their financial advisers — are not investing in this fast-growing new asset class,” said Ric Edelman, founder of the RIA Digital Assets Council.

Bitcoin is fast becoming mainstream, and Coinbase’s direct public offering will be remembered as a seminal moment, said Edelman. “Advisers who continue to dismiss digital assets will soon start losing clients and assets to those who are embracing them,” he said. 

Advisers are taking notice as more clients are asking about cryptocurrencies. In fact, 61% of advisers have had clients approach them for information about cryptocurrency, and client demand was among the top factors motivating advisers who have already jumped into the space, according to the recent white paper produced by Grayscale Investments in partnership with InvestmentNews Research. 

Investor engagement could skyrocket as Coinbase’s public listing marks a milestone in the maturation of the crypto-market and puts the concept of crypto-assets firmly in the zeitgeist of the investing public, said Christopher Shea, chief investment officer at RIA WealthSource Partners.

“[Coinbase] represents an opportunity for advisers to allocate to the crypto space indirectly through a firm that facilitates peoples’ ability to participate in the crypto craze — a firm with real assets that generates measurable cash-flow,” Shea said. “It’s the old Levi Strauss model: don’t mine the gold, sell the jeans.”

Coinbase’s DPO is also a watershed moment for technology, as the public listing will mint new investors who will likely invest into the blockchain, said Alex Tapscott, managing director of the Digital Asset Group at RIA Ninepoint Partners.

Coinbase will also be the first and only large-cap company that institutions can own in the public markets, Tapscott said. “I expect they'll invest enthusiastically, as they have with other high profile large-cap technology IPOs throughout history,” he said. “This [DPO] is a shot across the bow of Wall Street ... the crypto wave has become a tsunami.”

However, some advisers are not able to use cryptocurrency exchanges like Coinbase for regulatory and compliance reasons, Tapscott said. “Until that changes, and we expect it'll take some time, a more convenient way to get exposure to Bitcoin and other digital assets is via listed products,” he said. 

Financial adviser Mark Struthers of Sona Wealth Advisors said his clients are asking about cryptocurrencies more, so he’s helping clients get set up on Coinbase. For Theresa Morrison, a financial planner and founder at Beckett Collective, her small account clients are already using Coinbase. 

“For a typical client who wants exposure to crypto, but is not singularly crypto, we usually end up with 1% to 4% allocation,” Morrison said. “Soon, new businesses and existing behemoth companies will develop goods and services that bridge the crypto and physical worlds, bringing consumers into the fold.”

Having well financed companies like Coinbase go public gives investors a sense of confidence in platforms and the investment experience in digital assets, said Damon Deru, founder and CEO of AdvisorPeak. 

“For advisers, their clients are increasingly trading digital assets on their own through these retail channels,” Deru said. AdvisorPeak announced Wednesday a partnership with Prime Trust to deliver a trading solution where advisers can manage accounts — including IRAs and Roth IRA’s — to trade and rebalance digital assets and accounts just like they would traditional assets such as exchange-traded funds or mutual funds.

For advisers not setting up clients on apps like Coinbase, awaiting a Bitcoin ETF might still be the best route, particularly for advisers that are restricted from engaging with digital assets due to compliance purposes, said Terry Sawchuk, CEO of Sawchuk Wealth. 

No fewer than eight applications for a Bitcoin ETF have been filed with the Securities and Exchange Commission since late December, with billionaire Michael Novogratz’s Galaxy Digital Holdings Ltd. joining the list on Monday.

“As for clients, it seems likely that through financial advisers, very soon crypto will be available through the brokerage channel via ETFs, and when that happens it opens up a massive amount of liquidity that could potentially move into crypto,” Sawchuk said. 

In the meantime, the Coinbase buzz could be the strongest market tool that will encourage both advisers and investors to embrace education around digital assets, said Chris King, CEO and founder of Eaglebrook Advisors, a crypto-focused investment firm that provides financial advisers with access to Bitcoin through the Eaglebrook Bitcoin separately managed account.

MoneyLion co-founder and CEO Dee Choubey said the Coinbase DPO will further accelerate digital banking and investing platforms to address financial education around crypto for advisers. 

In a survey of over 2,000 of MoneyLion members, 42.5% say the reason they don’t own cryptocurrency is because they lack knowledge and understanding of the asset class. 

“The conversation all advisers need to be having with investors is, ‘dip your toe,’" Choubey said. "Understand the volatility, understand how it matches your financial goals and risk profile and ultimately, recognize that crypto is just another asset class that either a digital-adviser or a financial adviser should start to build into investor portfolios.”