“Coinbase’s direct listing is a watershed moment for the crypto industry” – Leeor Shimron
In December 2020, Coinbase announced that it had confidentially submitted a draft registration document to the Securities and Exchange Commission (SEC).
On the 14th of April 2021, the crypto industry hit a milestone as Coinbase went public via an initial public offering (IPO). On the morning of the 14th, the shares traded as high as 72%, as investors jumped on the opportunity.
The emergence of Coinbase
Over the years, cryptocurrencies have gained popularity. Everyone wants to own Bitcoin, Litecoin, Ethereum, and other currencies. However, to get such currencies, you either have to mine them (basically, create them from scratch) or buy them. Since many can not do the former, they settle for the latter and this is where companies like Coinbase come in.
In June 2012, Brian Armstrong cofounded Coinbase. The Silicon Valley-based company is a digital exchange platform that allows you to buy and sell cryptocurrencies such as Bitcoin, Litecoin, Ethereum, and many others. The Coinbase app has a “digital wallet” where one can store cryptocurrency as a form of investment. Coinbase also has other services available for users through which it charges a transaction fee. The amount paid is dependent on the region of the user or the product feature being used.
Coinbase currently has more than 56 million individuals, 7,000 institutions, 115,000 partners in over 100 countries making use of their platform. It also recorded a revenue of $1.8billion in the first quarter of 2021. It is known as the most secure crypto-exchange platform, as the company says its platform, unlike others, has never been hacked.
IPO or DPO: A case of mistaken identity?
According to many media publications, Coinbase’s listing is referred to as an Initial Public Offering (IPO). However, many analysts have said that Coinbase agreed to a Direct Public Offering (DPO) instead of an IPO. What then is the difference between the two? Both involve a company offering its shares to the public for the first time to raise capital.
However, unlike an IPO, a DPO is more limited in its dealings. With an IPO, a company can offer its stocks for sale to the general public regardless of who they are. A DPO, on the other hand, is more streamlined. In its case, stocks and shares are only offered to those that are directly connected to the company i.e., its customers, suppliers, and other stakeholders.
Of course, given the fact that a DPO is more limited, the capital raised may not be as much as that of an IPO. However, it will be a case of “serious buyers” only, i.e. those who understand the value of the shares that are being bought. Given the fact that many people are still crypto-agnostic and sceptical about the industry, the DPO will be taken advantage of by those who have a keen interest in cryptocurrency and understand its risks.
Financial analysts have sure had a lot to say on the recent DPO of Coinbase. Gil Luria stated that: “retail investors that are looking at investing in Coinbase need to understand the layers and layers of risk to Coinbase’s business… the reason we recommend Coinbase is we believe that the reward is potentially so high that it justifies that level of risk”.
Surely, there is a risk that comes with every investment. However, the crypto industry is highly volatile and while this might be discouraging to some, it would not be to those who are ardent risk-takers.
Coinbase’s performance so far…
A day before its listing, the reference price for Coinbase was set at $250 by Nasdaq. However, a day after, Coinbase’s shares were being sold at $381. The price further went up to a record high of $429.54. It has however dropped lower by 120% and is now set at $307.86 (as of April 22nd). One can say that Coinbase made a pretty impressive debut on the stock market.
Meanwhile, some investors have been jumping on Coinbase’s debut. One of such investors is Cathie Wood, CEO of ARK Invest, who bought over 749,000 shares of Coinbase, giving her a $246 million stake in the company (the company listed 114,850,769 shares of stock).
On the Next Episode…
Coinbase has made a triumphant entry into the stock market, as it has attracted attention from people around the world after its listing. The company will not only attract new investors but new users as well, and it’s a win-win situation.
While some might still be sceptical about investing in the company, others have taken and will continue to take advantage of the opportunity. Coinbase has set the pace for the crypto industry, one can only look forward to other crypto exchange platforms following in its footprints.
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