Coinbase going public is a great opportunity for future investment and a huge step for the crpyto world. On the 28th of January 2021, Coinbase decided to shock the world by releasing a statement about its plans to go public through direct Nasdaq listing. According to some experts, these are promising times for potential investors who have always had plans of being part of such a heavyweight in the cryptocurrency industry.
The major aim of this post is to reveal more details about such plans including whether it is worth all the hassle or not. Don’t forget that Coinbase is the biggest and most popular cryptocurrency exchange in the US. Its daily trade volume is around $3.2billion. Therefore, always expect its decisions to make headlines. Just read on to find out more about this plan to go public.
How it all started
Although the reports came out in January 2021, there have been rumors about Coinbase going public for a long time. Initially, most people believed that capital would be raised via IPO (Initial Public Offering). This is a process whereby new shares are created. It will then employ underwriters (like banks) to handle promotion.
Although the reports came out in January 2021, there have been rumors about the company’s decision to go public. Initially, most people believed that capital would be raised via IPO (Initial Public Offering). This is a process whereby new shares are created. It will then employ underwriters (like banks) to handle promotion.
However, the crypto giant plans selling new shares to potential investors via direct listing. In other words, new shares will be created using a strategy such as this. The company’s process of public listing commenced at the ending part of 2020 when it decided to file preliminary documents with the US Security and Exchange Commissions (SEC).
The difference between IPO and Direct Listing
If an IPO is chosen, Coinbase will hire big banks to help out in the promotion campaigns of its stock. This is very important since it can help in ensuring such shares are sold to the right investors. Of course, banks are always expensive when it comes to activities like these. However, they can help in handling all the processes of promotions and even set prices for such shares.
A direct listing is the opposite since banks will be skipped. In such a case, a company can decide to sell its shares directly to investors without help or assistance from banks. The major difference that exists between both is that in IPO, new shares are created and issued. Direct listing on the other hand, doesn’t allow the creation of new shares. Instead existing shares of investors and employees will be offered in the stock market.
Why is Coinbase going public via direct listing?
Coinbase has decided to explore the option of direct listing instead of IPO. This has surprised many experts given that banks would have played a crucial role in the promotion of its shares to serious potential investors. Below are some reasons that could have brought about such decision:
1. It is less expensive
This is one of the major advantages that a direct listing option can offer. Underwriters become very important when a company doesn’t have a strong presence in its market or industry. Coinbase is different given that it has proven to be a powerhouse in the world of cryptocurrency. Just as said above, it is one of the most popular cryptocurrency companies in the US. According to Coinmarketcap.com, it contributes about 6.29% of cryptocurrency transactions all over the world. This is only second to Binance.
2. Non dilution of existing shares
Dilution is a situation in the stock market whereby prices of shares are being driven down. It usually happens when new shares are created. In the case of Coinbase using a direct listing option, such a problem will be nonexistent. It means shares of employees as well as investors are safe. They will not face any risk of losing their value.
3. Faster process
One of the major problems that middlemen have been known to create is causing delay of transaction processes in the stock market. Before going public, there will be many regulatory hurdles to pass. A typical example is underwriter contracts which will have to be filed with the SEC before proceeding. All of these have been eliminated through the use of direct listing.
What is the valuation of Coinbase?
It is always difficult to value start-ups. The only time such becomes a little easier is when they start accepting external investors. The official evaluation of Coinbase took place in 2018. This is when $300million was accepted in new financing. The reported worth of this company was around $8billion according to Crunchbase. However, a report was released by Axios, claiming that when the company decided to sell its shares in the private market, it was worth around $100billion.
Therefore, it is quite difficult to determine the profitability of this business for now unless a financial statement has been officially released by Coinbase. Experts are claiming the company may be valued at around 90$ – $100billion once it has finally gone public. It is also worth mentioning that its $350 per share was the trading price at Nasdaq Private Market auction.
Please note that none of these figures can accurately explain the market cap of Coinbase. Such can only be determined when it has finally gone public. Potential investors are really curious about this one.
How does Coinbase generate profits
This is one question that potential investors are going to be asking once the company has finally succeeded in going public. Although it can be used as a wallet as well as an exchange, people are not charged for using it to store their cryptocurrencies. Instead, it makes money by having to charge fees and commissions from people who are buying and selling cryptocurrencies using its trading platform. These could be Bitcoin, Ethereum, Bitcoin Cash, Litecoin and many other cryptocurrencies. The fees it charges are in the form of:
This can also be called margin fee. When cryptocurrencies are sold or purchased, Coinbase charges about 0.5%. This rate is not fixed though given that market conditions vary from one period to another. In other words, people will be charged different margin fees at different times.
This is a commission that is generated from every cryptocurrency transaction. It is usually paid together with the spread. This is meant for people who are trading using its platform. There are two major factors which determine the amount to be paid. These are transaction amount and location.
What to watch out for
There is no doubt that potential investors are really keen to know more about Coinbase and how events will eventually unfold. For instance, a recent announcement it made is that before shares will be released to IPO, its registered members will be given the chance to get them first. This brings us to the question of how much the share is going to cost. One of the major factors that can determine such price is the company’s market cap which for now, remains unknown. While some experts are claiming it is worth around $75billion, others say it is around $90billion or even more.
The cryptocurrency market cap is almost 1trillion dollars which is quite impressive. Apart from bitcoin, there are other smaller cryptocurrencies which are doing quite well at the moment. These could be Ethereum, Bitcoin Cash, Litecoin and others. Currently, the price of bitcoin is over $55k. Don’t forget that over the past 12months, this has increased by more than 100%. It means good news for investors when Coinbase finally goes public. The company is offering over 40 different cryptocurrencies.
Also, it has around 43million registered members and manages digital currency worth over $90billion right now. Based on all of these, it can be said that we are looking at a situation where investors would consider the possibility of buying this company’s shares once it is released through an IPO.
The bearish side
Despite the popularity of Coinbase, it is very important to note that potential investors are going to be interested in figures. This is true of its market cap value which still remains unclear to most experts. Also, they can’t just tell members that their share price will be $XXX amount. Instead, there must be a basis for such price.
Another problem is the volatility of the cryptocurrency market. Prices are always swinging upwards and downwards. The price of 1bitcoin in 2017 was around $17,900. In December 2020, it was around $23,421 after hitting an all-time high. In March 2021, it reached over $55,000. If Coinbase reports its profits, is it going to reflect only Bitcoin? It is true that Bitcoin has grown over the years, but other cryptocurrencies haven’t enjoyed such growth as well.
Generally speaking, the highly volatile nature of the cryptocurrency market will make it a less attractive prospect for potential investors. Of course, bitcoin and other cryptocurrencies can experience a significant fall in value due to some factors. Such is the case of cryptocurrencies which have failed in the past like GetGems, SpaceBIT, PayCoin, Dogecoin, Ethereum’s DAO and others.
It’s obiuous that Coinbase has done well over the years and that investors will be queuing up to buy its shares.Coinbase going public raises lots of questions which need to be answered. The major one amongst them is the high rate of volatility of the cryptocurrency market. This can either favor potential investors or work against them.
Be sure to stay educated and alwas do your own research before investing! Interested in more news and articles? Have a look at our stock market guides or cryptocurrencies guides. We cover topics as FOMO trading, choosing a crypto wallet and many more.