'Coinbase IPO is a seminal moment for the industry': BlockTower Partner

Michael Bucella, BlockTower Partner, joined Yahoo Finance to discuss the Coinbase IPO.

Video transcript

SEANA SMITH: Bitcoin hitting a record high today, pushing about 53,000 ahead of Coinbase's public debut. To discuss all this, we want to bring in Michael Bucella. He's a partner at Blocktower. And Michael, great to have you. So, Coinbase, we're expecting that debut tomorrow, the crypto platform. You're calling this a seminal moment for the industry. Why?

MICHAEL BUCELLA: Yeah, it's widely anticipated and very exciting moment for industry. It's the first major player to be a publicly listed asset. It sets precedent for every other company and industry. And it's a behemoth in this space. And so it's exciting for all of us to finally see this come to fruition. It's a legitimizing moment for this space overall and an exciting time.

JARED BLIKRE: Let me get your take on what's happening in crypto space here. Because we're seeing so many of the tokens and Bitcoin itself, Ether, XRP at record highs. How much of this do you think is tied to Coinbase's listing tomorrow? And then, what are the odds that this is a sell-the-news event? Could that possibly happen?

MICHAEL BUCELLA: Yeah, so the market structure is fairly interesting in that if you look at the beginning of the year, that initial run was led in January by what we would consider to be Asia retail-levered speculators. February and March were very firmly spot bids out of the Western hemisphere. That was indicative from the Coinbase filings we saw and the announcements by companies like Tesla. We're back in an environment where we're actually seeing more speculative levered buying in the market today.

That's not to say that it's not a sustainable rally, but it's a bit less healthy of a rally than we've seen previously. And that data does change day by day. So we are seeing some bidding into this, perhaps the listing of Coinbase could be kind of a motivational factor for some additional spot buying out of the Western hemisphere again. But certainly seeing a bit more speculative buying in this most recent run.

SEANA SMITH: Michael, the expected valuation of $100 billion for Coinbase, does this valuation make sense to you? Is it too high? Is it too low? What do you think?

MICHAEL BUCELLA: You know what? In this market, trying to tether valuations isn't always the best idea as a growth equity investor. But if you just look at the numbers, you know, they released them, I believe it was last week, you know, $1.8 billion in revenue in the first quarter, $3 to $35 billion in assets in the platform across 56 million users. That represents about 10% of all the assets in the crypto ecosystem. And that user base is larger than Venmo and Square Cash app. You've got a run rate of $7.2 billion. That's more than the CME and CBOE combined. And you've got a market cap at $100 billion. You're looking at roughly four times the value of the NASDAQ.

So it's tough to say that-- I would say the speculated numbers are anywhere from kind of that round $100 billion level that folks have been eyeballing and where it's kind of crossed the NASDAQ private markets. There's an exchange in the crypto space called FTX, where they have a Coinbase future that's right now trading around $155 billion expected market cap. And then if you talk to the institutional community, the expectation is somewhere closer to $75 billion.

So, it certainly is a wide range of outcomes. I think it was smart of them to bring on-- not to pitch my own model, but to bring on Goldman Sachs as an advisor on the direct listing. Benny Adler has been opening stocks in the IPO and direct listing market for many, many years. And I think his main goal is to make sure it's an orderly open to protect most investors from getting in over their skis. So I think what the expectation is, is to create a more orderly transparent book before opening the stock price. And we'll see where it ends up.

JARED BLIKRE: Yeah, and I just want to follow up on that because it's pretty interesting. This is the first big direct listing, maybe the first one at all that the NASDAQ has handled is usually Peter Giacchi at Citadel opening them up over at the New York Stock Exchange. I remember Facebook back in the day. I assume there's going to be a lot of eyeballs on this. But what is the process of matching these orders, especially on a dealer exchange like the NASDAQ?

MICHAEL BUCELLA: So the most significant piece of it is the conversations between the largest holders, and in this case, the advisor being Goldman and a few others involved in the mix. It's really helping to identify the level of supply needed to effect a orderly open. And so, typically, that falls anywhere in the range of 5% to 10% of supply. You want to open on a substantial amount. The opening kind of lock on Coinbase is expected in the multiple billions of dollars, which will be the largest ever first print for a stock.

And so, those conversations evolve, right? You obviously have venture capital firms that are largest holders. And they are very much long-term believers in what Coinbase will represent. But you also need to allow for large, long-only hedge funds and retail investors to position and be able to grow that position to take place in their portfolio as an allocation to the space. And that's going to take some time. You've got-- the other interesting part is you have all of those larger VCs require a closing price versus a reference price.

And so, you'll see, come tomorrow, when some of those shares are distributed in the closing price, how much supply actually ends up coming to market. So there's a lot of evolving pieces and a lot to come. And you're right, this is-- direct listings are still fairly new, of this size, unprecedented, and the first in the NASDAQ.

SEANA SMITH: Well, we will see how this plays out tomorrow. Michael Bucella, partner at Blacktower, great to have you on the show. Thanks so much for joining us today.