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Coinbase is pegged for a valuation of up to $75 billion. Is that realistic?

January 14, 2021, 7:30 PM UTC

Coinbase has long been a standard bearer for Bitcoin and cryptocurrency. When it goes public in coming weeks, the price that the digital-currency giant fetches will not only show the company’s true value, but also provide a benchmark for what other crypto firms are worth.

So what price will investors put on the San Francisco-based crypto firm? It’s hard to say, since the last formal valuation for Coinbase took place in 2018eons ago, in crypto yearsfollowing a $300 million Series E round that declared the company to be worth $8 billion. It’s a safe bet that Coinbase is today worth much more than that, not least because crypto prices have gone through the roof in recent months.

To get an idea of just how much Coinbase’s value has increased since that 2019 valuation, we can turn to services that let traders bet on its IPO price. One of these is the prediction market, Polymarket. According to recent bets on that site, Coinbase’s market cap the week after its IPO will be around $63 billion. Meanwhile, the derivatives site FTX has seen traders buy futures contracts that peg the company’s post-IPO value at $75 billion.

At first blush, such valuations—which imply Coinbase’s worth has increased more than eight times in less than three years—seem extravagant. While the company is the face of a crypto market that is currently white hot, it’s also exposed to the sudden crashes that have defined the industry since Bitcoin launched in 2009. Only three years ago, for instance, the price of Bitcoin collapsed nearly 85%, from a high of $20,000 to around $3,000.

When these crashes occur, and history tells us another one is likely, they typically lead to what the industry calls a “crypto winter.” In these winters, which can go on for years, prices stay stagnant and trading volumes dry up. They also pose a double hit for Coinbase, which relies on trading commissions for most of its income: Fewer trades mean less revenue, while lower prices mean less money per trade. Right now, record trading volumes and all-time high crypto prices—Bitcoin recently hit $40,000—mean Coinbase is rolling in it. This sunny state of affairs could be leading speculators to overvalue the company’s prospects.

Meanwhile, the crypto industry, which has long struggled for legitimacy amid myriad scams and money-laundering shenanigans, still faces a very real threat from U.S. regulators. Despite a series of favorable rulings by the country’s bank regulator, the Office of the Comptroller of the Currency (OCC), other federal agencies remain clearly hostile. More aggressive enforcement, like the controversial lawsuit launched by the Securities and Exchange Commission against crypto firm Ripple in December, could torpedo the prospects of both Coinbase and the crypto industry.

That’s the bear case. The other view is that a $60 billion to $70 billion valuation for Coinbase is realistic or even conservative. Bulls can point to the fact that, unlike many companies that have gone public in recent years, Coinbase has claimed multiple quarters where it’s been profitable.

And while Coinbase still relies on trading for the lion’s share of its revenue, the company has made headway in developing other lines of business. These include a custody service for the growing number of institutions that want to safely store their crypto holdings, as well as a consumer debit card and lending products for cryptocurrency. While crypto lending is still a nascent field, it could grow enormously if the industry continues to mature—and Coinbase, which is beginning to resemble a full-blown bank, will be a prime benificiary.

The case for a $75 billion valuation can also be justified by the degree to which Coinbase dominates the U.S. crypto industry. Not only does it dwarf its exchange competitors, but its large balance sheet and blue chip board have enabled it go on an acquisition spree that will help it stave off future competition. Combine all this with its longtime relations with regulators, and Coinbase has what looks like a strong moat.

The best case for a high valuation, though, may be just how far the crypto industry has matured since the bubble of 2017. That era was defined by fly-by-night crypto cowboys fleecing gullible investors. This time around, there is considerably less media hype, even as major investors and companies like payments giant Square—which sat out the last crypto bull run—embrace Bitcoin and crypto like never before.

Meanwhile, crypto’s underlying blockchain technology is quietly becoming mainstream. In recent weeks, the OCC has issued rules letting traditional banks carry out settlement activities on a blockchain, and issued a federal banking charter to the crypto firm Anchorage—a step that will likely accelerate tie-ups between the old financial world and the new. At the same time, the likes of Visa and Mastercard are also investing in crypto infrastructure, affirming the technology is not the fad that critics like to decry it as.

If the future of finance is to revolve around crypto and blockchain, it’s a good bet that Coinbase will be a big part of that. Jason Yanowitz, the co-founder of crypto media firm Blockworks, tells Fortune that a $60 billion valuation for Coinbase is reasonable when compared to the likes of JP Morgan. That multinational bank is currently valued around $435 billion—which would mean that current estimates peg Coinbase at 13% to 15% of that.

“I think it’s a fair valuation. It’s a bet on the future especially given the rate of innovation at Coinbase,” said Yanowitz.