Coinbase IPO Raises Concern About Bitcoin Long-Term

While the price of Bitcoin has been nothing more than incredible over the past year and completely blown me away, (and certainly proven me wrong a number of times when I have in the past stated that I did not think Bitcoin or any cryptocurrency was a "wise" investment), a new warning sign has made waves in the cryptocurrency industry and markets.

The warning comes from Coinbase prior to its upcoming initial direct listing, a different version of an initial public offering. In the report released by Coinbase for potential investors, the company listed several potential risks to its business. This is very common with public companies, even well past the time they have gone public. However, this is the first time we have seen these warnings from Coinbase, which generates the vast majority of its revenue from the trading of Bitcoin and Ethereum.

These risk factors include "disruptions, hacks, splits in the underlying network also known as 'forks,'" as well as developments in quantum computing and regulation that affect cryptocurrencies.

"The future development and growth of crypto is subject to a variety of factors that are difficult to predict and evaluate," the filing read.

Furthermore, the filing also mentioned "the identification of Satoshi Nakamoto, the pseudonymous person or persons who developed bitcoin," as a potential risk factor. It mentioned the transfer of Nakamoto's bitcoins, which some believe is worth around $30 billion. Bitcoin bulls fear that if Nakamoto is identified, it could harm bitcoin's decentralized nature, reputation, and overall security.

The identity of Nakamoto has been debated for years, but no solid leads have ever come, and no one who has claimed to be the creator of bitcoin has ever been able to provide proof.

Clearly, Coinbase believes that if any one of a number of different events occurs, it could see the price of Bitcoin fall, which would reduce its trading revenue and therefore cause harm to the business and its investors. As I have mentioned before, laying out the potential risks to a company is very common and often the type of events that could occur at any time, with little warning and would not necessarily be predictable by either investors or company management.

So, just because Coinbase is laying out the risks doesn't mean investors should run for the hills, unless perhaps if you thought bitcoin had zero risks, as some people have indicated. However, these are serious risks to bitcoin and its long-term future. The Nakamoto situation is very complicated, and we are unlikely to know how that would affect bitcoin or Coinbase unless Nakamoto came forward.

But, some of the other concerns are more understandable, and their outcomes perhaps more predictable. Such as the forking of bitcoin or splits. These, in a way, devalue bitcoin and make it less rare. Obviously, a bitcoin hack would be terrible because bitcoin was built on the idea that it's safe, secure, and not necessarily traceable. If all of those benefits went away, then perhaps bitcoin would not be worth anything? Most experts consider a bitcoin hack today as unlikely, but what about in the future when computers get faster and better? Perhaps then someone may be able to hack the blockchain code?

These are all risks bitcoin has faced since day one, so really nothing has changed other than a company has now come out and stated that these could be risks or concerns. Bitcoins price fell nearly 25% around the time this information was released, which could be a coincidence.

We have seen Bitcoin rise and crash more than 25% several times, and the price of the cryptocurrency is dramatically higher today than it has been in the past, indicating that those drops would have been worth riding out up to this point.

Bitcoin at this point is no different than any other investment you can make. The price of bitcoin is based on what someone else will pay for it, just like a house, vehicle, stock, bond, or bar of gold that you are trying to sell. Bitcoin has been adopted by a number of banks, businesses, and investors, giving it more strength and legitimacy than it has ever had in the past.

So, while these risks may be "new" to you or me, they have always been there. On the other hand, cryptocurrency support is only growing, perhaps making it less risky?

Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor held long positions in Apple, Tesla, Intel, Google, Amazon.com, Facebook, Priceline and Microsoft at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.