Cryptocurrency giant Coinbase will soon go public with its IPO, but when exactly will that happen?
For those unfamiliar with Coinbase, it is the largest cryptocurrency exchange in the United States. Since 2012, it has based itself on the idea that anyone should be able to easily and securely access cryptocurrencies. The company allows buyers and sellers to meet in the middle to find a price for Bitcoin, Litecoin and more.
As of now, Coinbase has not released an official date for its IPO. Some reporters have said, though, that the company could go public as soon as the end of February or early March.
Coinbase originally announced plans to IPO in December through a blog post, with speculations starting as early as last July. At the end of last month, however, it revealed that it would not go through a traditional IPO; it will, instead, go public via direct listing.
Prior to its direct listing announcement, Coinbase also revealed that it would offer a secondary market for private shares. This means that current and former company employees with vested equity in Coinbase have the chance to sell their shares via the Nasdaq Private Market.
Traditional IPO vs. Direct Listing
Coinbase’s plan to go public through direct listing brings up the difference it has as opposed to a traditional IPO.
With a traditional IPO, new shares are created and underwritten, and then sold to the public. Companies hire an underwriter to closely work together during the process; this includes deciding the initial offer price of the shares, helping with regulatory requirements, buying the available shares from the company and then selling them to investors via distribution networks.
Direct listings involve going straight into trading. Companies will not create any new shares to sell. Instead, they sell the shares they already have directly to the public, without any help from underwriters or intermediaries.
Bad Move or Good Move?
Loanry CEO Ethan Taub said that going the direct listing route does bring a bit of a risk; there is no guarantee for share sales and there is no security or safety for long-term investors.
He also said that while Coinbase going public is a big deal, the decision to do so via direct listing may not be the wisest.
“Direct listing is usually a cheaper process, which can be great for smaller businesses looking to go public but the risks can be quite severe on the company as well as investors,” Taub said. “Of course it may be to cut costs and it could work really well for that, but without an IPO, I’m not entirely sure it’s worth it just yet.”
In contrast, Dr. Clemens Kownatzki, Assistant Professor of Finance at Pepperdine University’s Graziadio Business School, believes that Coinbase going public via direct listing is the right move at the right time.
“There has been a general trend over the past few years that some call the democratization of finance,” he says. “Although much of this has been technology driven, companies like Robinhood frame their mission as leveling the playing field for the little guy … Similarly, one could look at direct listings as a way of leveling the playing field, making it easier for smaller firms to go public and raise capital from equity investors.”
