However, this Coinbase effect may also go both ways. If, on the other hand, Coinbase’s arrival on the market is underwhelming, it could cause the prices of cryptocurrencies to fall in the immediate aftermath.
Why Choose A Direct Listing?
Contrary to what some market commentators had anticipated, Coinbase opted for a direct listing rather than launching an initial public offering.
In the past, a direct listing would’ve meant that a company could only float its existing shares, whereas an IPO enables the creation of brand new shares. Although the U.S. Securities and Exchange Commission (SEC) had recently lifted such restrictions, Coinbase decided against the notion of creating new shares for the offering, meaning that it wouldn’t dilute its existing equity. The direct listing will also mean that the exchange will get to avoid some of the costly requirements associated with an IPO — including the use of services like underwriters.
Significantly, Coinbase likely sees direct listing as an opportunity for anyone to buy and trade shares in the company — potentially paving the way for brand-new investors to enter the world of cryptocurrencies for the first time.
Although the prospect of a cryptocurrency-based company launching an IPO would’ve raised many eyebrows, the reality is that initial public offerings are generally restricted to institutional investors who would be willing to buy huge volumes of shares in a single transaction — rather than members of the public and the retail investors that the exchange is aiming to inspire in going public, who would only buy small clusters of shares in a single go.
The approach of Coinbase to pick a direct listing shows that there’s no favorability toward institutional investors at the IPO stage , which is likely to be welcome news to cryptocurrency enthusiasts who value the freedom of operating in a decentralized market that actively rejects central powers holding all of the cards.
Coinbase is looking to pay homage to its roots as it goes public. In this unprecedented move for a cryptocurrency exchange, the next steps of Coinbase may well set the tone in what’s set to be a year to remember for the world of bitcoin.
This is a guest post by Peter Jobes. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.