Cryptocurrency News

Coinbase is Getting Ready to go Public, but the Structure of its IPO Remains Unknown

By December 21, 2020 No Comments

Cryptocurrency exchange Coinbase announced on December 17 that it has filed for a public offering with the U.S. Securities and Exchange Commission (SEC). The announcement of the filing, which has been rumoured to be on the table for quite some time, came just one day after Bitcoin broke the $20,000 barrier, which caused trading volumes to surge. Needless to say, such market circumstances are especially beneficial for exchange platform owners, who make most of their income from trading commissions.

Everyone is asking the same question – Will Coinbase offer Tokenized Shares?

The company’s PR department was very brief in their IPO announcement and omitted any details about how Coinbase would structure its offering. However, it is very unlikely, that a traditional IPO, whereby institutions get first access to the stock at a fixed price, would appeal to Coinbase employees, let alone crypto enthusiasts. In addition, Coinbase co-founder Fred Ehrsam told Fortune in one of the recent interviews, that the San Francisco-based exchange is “spiritually built” to go public via an offering involving digital tokens on a distributed ledger, also called a blockchain – the very same technology that underpins Bitcoin and most of other cryptocurrencies. While this might seem as the only logical choice for Coinbase, it is somehow unlikely that the U.S. Securities and Exchange Commission would approve such an IPO structure (if the SEC does end up approving it, this would set a precedent and potentially open doors for tokenized shares offerings). In the end, Coinbase might have to settle for a direct public offering (DPO), a model in which shares are sold directly to the public. Several large tech companies such as Spotify and Slack have recently pursued a direct public listing. Coinbase representatives refrained from responding to queries about the nature of listing the company plans to pursue.

Coinbase became the standard-bearer of the Crypto Industry

Coinbase emerged in 2012 and quickly became popular among Americans, because it offered the simplest way to acquire Bitcoin. It must be noted, that at that time most investors still considered Bitcoin a fraud, while government officials and regulators saw the cryptocurrency primarily as a vehicle for crime and money laundering. As the attitude towards Bitcoin and crypto gradually changed for the better, volumes and prices increased, and Coinbase grew too. Along the ways Coinbase made a few acquisitions, aiming to diversify its revenue sources to not rely on trading fees alone. The company, for example, dived into crypto custody business, which involves charging clients to safely store large amounts of cryptocurrency. Today Coinbase Inc. is a conglomerate of several crypto-related business and the standard-setter in the crypto industry.

The company is valued at more than $8 billion while its profits remain undisclosed

Following the competition of its last funding round in October 2018, which saw $300 million of fresh capital raised, the Coinbase exchange has been valued at around $8 billion. However, because of the bullish conditions on the crypto market and a large interest for their public debut, Coinbase will likely seek a much higher valuation. On the other hand, early shareholders, including CEO Brian Armstrong and venture firm Andreessen Horowitz, will have an option to cash out because of the IPO. The exchange’s revenue and profits, however, remain a mystery for now. Nevertheless, sources close to Coinbase say it has regularly turned a profit in recent years. Furthermore, the exchange’s yearly revenue reportedly exceeded $1 billion already in 2017, so this year’s numbers are likely even higher.