In January 2020, San Francisco-based cryptocurrency exchange go public via a direct listing.announced plans to
The company shared the news in a blog post, in which it announced its intent "to become a publicly-traded company pursuant to a proposed direct listing of its Class A common stock. Such proposed listing is expected to be pursuant to a registration statement on Form S-1 with the Securities and Exchange Commission (the “SEC”)."
— Dave Hendricks (@davehendricks) January 28, 2021
Direct listing vs IPO
Notably, Coinbase has opted for a direct listing over an IPO. In December 2020, there was widespread anticipation that the exchange would go public with an Initial Public Offering (IPO) following its submission of a Form S-1 draft registration to the US Securities and Exchange Commission (SEC).
A direct listing differs from an IPO in that it is limited to existing shares, where an IPO involves the creation of new shares. It enables Coinbase to bypass many of the onerous (and expensive) requirements of an IPO, including using the services of intermediaries known as underwriters. Prior to the announcement of its direct listing, reports circulated that Goldman Sachs would act as underwriter for a possible Coinbase IPO.
We have confidentially submitted our draft registration (Form S1) with the Securities and Exchange Commission. https://t.co/U6d0sVz0aX
— Coinbase (@coinbase) December 17, 2020
Regardless, the public listing means that anyone will be able to buy and trade shares in Coinbase, potentially drawing a lot more investors into the industry. The listing would offer investors a stake in the company under the beam of the SEC's regulatory headlamps.
Coinbase's case is buoyed by the news that in December 2020, the SEC approved the New York Stock Exchange's proposal to allow companies to raise capital in a direct listing. Although Coinbase plans to list on Nasdaq, the SEC's decision has paved the way for a number of companies to opt for the direct listing route—including data analytics firm Palantir and games company Roblox.
However, the SEC has also taken a firm line against crypto companies in the past. It has chased after several companies which carried out initial coin offerings () for running unregistered securities sales, and repeatedly blocked applications for a on the grounds that the crypto market is prone to manipulation.
Will the SEC, then, approve Coinbase’s direct listing, given that its fate is so intimately tied to the rest of the market?
Coinbase: the basics
Coinbase opened to the public in 2012. With the backing of about half a billion dollars from venture capitalists, the crypto exchange grew and grew, so far attracting over 35 million customers (according to data from July 2020). In December 2020, crypto market analysis firm Messari valued the exchange at $28 billion.
Following Coinbase's IPO announcement, we value the company at $28 billion. Coinbase is one of the most prominent exchanges with $1 billion daily volume in Dec-20.
Check out our model and edit it to your own assumptions. https://t.co/BQeSAxUd5j
— Mira Christanto (@asiahodl) December 18, 2020
But what… is it?
Coinbase offers two services. The first, known simply as ‘Coinbase,’ is the cryptocurrency wallet and brokerage service so popular among the public. On Coinbase, users can buy and sell crypto within Coinbase using fiat currencies (i.e. ‘regular’ currencies like the dollar, sterling, or euro). It’s a brokerage, meaning that you technically buy and sell from and to Coinbase itself.
Then there’s, a more advanced exchange where users can buy and sell cryptocurrencies from other users, comparable to the dozens of other exchanges.
How does Coinbase make money?
To make money, Coinbase charges several different fees on its brokerage app. There are purchasing fees, more expensive for smaller purchases, trading fees and transaction fees, the latter of which apply to those wishing to move funds out of Coinbase.
These fees also apply to Coinbase Pro. It’s more expensive than its main competitor, Binance, but its selling point is its compliance with regulators. The US won’t allow Binance to operate in the US; it does so under an independent company, Binance.US.
Coinbase also has a venture capital arm, Coinbase Ventures, which invests in companies such as CoinTracker, and BlockFi.
Due to a technical issue, we are experiencing degraded service where some trades may not be able to be completed. Our team is working to quickly restore service back to normal, and we’ll send another update soon. Thank you for your patience. https://t.co/yCxdIQAK2Z
— Coinbase Support (@CoinbaseSupport) January 29, 2021
When will the Coinbase listing happen?
Given that the registration is currently under review and confidential, it's currently impossible to know when Coinbase's direct listing might take place.
What the Coinbase listing means for crypto
Coinbase’s listing offers investors and traders another way of playing the booming cryptocurrencies market, though with the peace of mind afforded by regulation from the SEC.
In this sense, investors gain access to a regulated company whose success tracks the crypto market without the need to custody specific tokens. And unlike buying crypto, shares in Coinbase would pay dividends.
Coinbase has taken care to play nice with regulators. It’s shied away from listing privacy coins due to US regulators' hard-nosed attitude against them; it's also declined to list controversial coins like , the US dollar that's currently under investigation by the New York Attorney General.
The timing of Coinbase’s submission of Form S-1 last December is noteworthy. Around that time, the SEC was making headlines for filing a lawsuit against over the XRP cryptocurrency, alleging that XRP constitutes a security, and that Ripple was distributing securities in unregistered sales.
Like many other exchanges, Coinbase has since suspended trading of XRP on its platform. In Coinbase's case, the exchange is likely aiming to ensure that it's fully compliant with the SEC in a bit to avoid any potential hiccups as its listing looms.
Coinbase is also looking to address a recurrent issue that's plagued it, and other exchanges: downtime during periods of cryptocurrency price volatility. Recent record trading volumes have driven traffic to the exchanges to new heights, putting their infrastructure under strain and causing outages. Coinbase is reportedly planning to break its "monolithic" infrastructure into "separate discrete services" in order to better scale in the event of load surges.
Secondary markets on Nasdaq and FTX
On January 25, Nasdaq Private Market launched a secondary market for Coinbase stock, enabling shareholders with vested equity, such as current and former employees, to sell shares. According to The Block, Coinbase shares on Nasdaq Private Market were matched at a price of $200, implying a valuation of around $50 billion.
Crypto derivatives exchange FTX, meanwhile, has been running a pre-listing futures contract market for Coinbase shares in collaboration with German capital markets firm CM-Equity.
To buy an early stake in Coinbase, customers need to sign up for FTX and purchase some of the US-dollar-pegged stablecoin Circle., a coin which is incidentally run by Centre, a consortium that includes Coinbase and
USDC can be bought straight from exchanges like Coinbase in exchange for fiat currencies, or other cryptocurrencies, likeand . The USDC can then be traded for FTX’s tokenized Coinbase pre-listing stock.
On FTX, Coinbase shares have been trading significantly higher than on Nasdaq Private Market, at $277, implying a valuation for the firm of around $70 billion.