Coinbase, the leading cryptocurrency exchange in the U.S., is expected to have a direct listing on the Nasdaq. At first, the company was considering listing on the NYSE, which has handled direct listings for popular technology companies such as Spotify (NYSE: SPOT) and Slack (NYSE: WORK).
Choosing a direct listing allows the company to forgo some of the traditional processes that come with an IPO, like investment banks investigating the business and determining the value of its share price. A direct listing doesn’t involve underwriters, and it allows existing investors, promoters, and employees that hold shares of the company to directly sell those shares to the public.
Basically, a direct listing gives a company more control over its public listing. Coinbase is a popular company, well-known for its cryptocurrency exchange, so there is no worry that it wouldn’t be recognized by potential investors. If the company were a little less well-known, then an IPO would be the way to go since an IPO comes with an “IPO roadshow” — essentially a way of marketing the company to get and increase investor interest.
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Coinbase doesn’t really need that kind of publicity. Potential investors are aware of the company, especially if they have been following the cryptocurrency market for the past few years. The company was founded back in 2012 and has been a key player in the crypto market, with one of the largest exchanges in the U.S. in terms of users and market capitalization. According to Coinbase, it has more than 40 million verified users in over 100 countries.
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Coinbase's online exchange is relatively straightforward and allows retail buyers and sellers to meet in the middle to find a price. Coinbase also has a platform called Coinbase Pro that's for more experienced users and gives them access to features and charts that help them go in-depth in the crypto market. Additionally, the company offers a free wallet service that gives its users a place to safely store their cryptocurrencies.
The company has been able to become and stay a leader in its market because of the fact that it has these types of services, but more importantly, it has been able to keep its users’ personal data secure. There have been a bunch of similar cryptocurrency exchanges that have emerged and dissolved because they were unable to provide this service.
Coinbase becoming a publicly traded company would solidify the legitimacy of the cryptocurrency market and could easily set the tone for the future of cryptocurrency in the market by giving other crypto brokers the incentive to go public. In the past few years, the crypto market has been criticized as being unregulated and impractical. However, those critiques could shift with a major cryptocurrency company like Coinbase going public and creating more public trust within the market.
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In recent months, the cryptocurrency Bitcoin has surged to record highs. As long as it can continue on that path, Coinbase and its direct listing will benefit. However, at the beginning of this week, Bitcoin did drop below $48,000. Despite that, the cryptocurrency market could become a little more mainstream with Coinbase's public listing.
Competitors of Coinbase like Robinhood, Kraken, and PayPal (NASDAQ: PYPL) understand the potential within the market and have begun to let their users buy and sell major cryptocurrencies, with lower fees and even no commission. This kind of competition gives the market more options, accessibility, and legitimacy.
Coinbase’s Direct Listing
In a recent private market share sale, Coinbase had been valued at over $100 billion. This could put the company at a higher initial valuation than any other U.S. tech company since Facebook hit the public market. The last time Coinbase had a formal valuation was back in 2018 when it accepted $300 million in new financing and was worth $8 billion.
We won’t know for sure what Coinbase is really working with until it releases recent financial information after it goes public. That’s when we’ll get a better idea of how profitable its business is and how much revenue it’s pulling in every year. If Bitcoin can keep making record highs leading up to Coinbase’s direct listing, then I believe that Coinbase could have a massively successful public listing.
A public listing by an influential cryptocurrency company like Coinbase is going to be a huge milestone for the cryptocurrency world and market. It will be a step towards intertwining crypto and the conventional finance world in a way that brings more legitimacy to a relatively new and “speculative” market. As of this writing, Coinbase's direct listing is expected in the next few months, though it has not announced an exact date.
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Until next time,
Monica Savaglia