Jan 29, 2021
In December 2020, the leading cryptocurrency exchange Coinbase announced that it was planning to go public. However, unlike most Silicon Valley companies, Coinbase intends to sell its shares by direct listing instead of an initial public offering (IPO).
Coinbase is a primary hub for retail and institutional traders to purchase cryptocurrencies. Brian Armstrong, the company’s current CEO, launched the business in 2012 along with Fred Ehrsam. Expectedly, as cryptocurrencies gained popularity, so did Coinbase. The company gained the ‘unicorn’ status in 2017, and its latest valuation, in 2018, was $8 billion.
What is a direct listing?
“We believe a direct listing more closely follows the ethos of crypto and Coinbase because it democratizes access and opportunities for all investors,” wrote CFO Alesia Haas in the memo sent to employees, as reported by Fortune.
A direct listing and an IPO are both methods employed by companies to raise capital by listing the company’s shares on a public exchange. However, the difference is that when a company is directly listed, it forgoes the traditional process of dealing with underwriters, investment banks, and broker-dealers. Furthermore, only the existing outstanding shares are sold through a direct listing.
Recently more and more companies, such as Slack, Palantir, and Spotify, have opted for a direct listing, causing it to grow in popularity. It’s no surprise considering that a direct listing means avoiding hefty bankers’ fees and generally having more control over the process.
How does Coinbase operate?
Coinbase accommodates both the beginner crypto trader as well as the professional one through its regular and pro platforms. Regular Coinbase is easy to use, but it only allows users to trade crypto by using market orders, which are expensive. Coinbase Pro, on the other hand, equips the traders with a lot more information and allows users to place market, limit, and stop orders with far lower commission fees.
As of December 2020, Coinbase is doing about $1 billion in daily volume, making it the undisputed leader of the crypto sector.
What does this mean for the market?
Coinbase plans to take the company public in February or March. They’ve chosen their timing strategically as today’s market is hungry for high tech IPOs. Not to mention the fact that Bitcoin has been rallying for the past few months, which always causes the crypto-related stock to surge.
Coinbase going public is a major milestone in the cryptocurrency world. It signifies that regulators, institutions, and investors are finally coming on board, legitimizing the industry and giving it a vote of confidence. In fact, for most institutional investors, Coinbase’s stock is the only viable solution to get Bitcoin exposure.