Coinbase Files for Initial Public Offering

Coinbase Files for Initial Public Offering

Published: December 25th, 2020

 Coinbase joins an ever-growing list of start-ups that want to go public. On Thursday, December 17, the company announced that it has confidentially informed the Securities and Exchange Commission of its intention to undertake an initial public offering.

Coinbase announced on Thursday, December 17, that it has confidentially filed for an initial public offering (IPO) with the U.S. Securities and Exchange Commission (SEC). With the announcement, the giant cryptocurrency exchange joins a growing list of start-ups seeking public funding.

The San Francisco-based company has grown to become the most valuable cryptocurrency company in America by leveraging its services that allow users to buy and sell virtual currencies. After a $300 million funding round presided over by Tiger Global Management, the cryptocurrency exchange's last quoted value rose to $8 billion.

Coinbase said that it expects the SEC to review its draft registration filing, after which the said draft will become effective. However, the company did not divulge any more information about its IPO plans. A representative contacted by the media declined to comment further apart from affirming the content of the statement.

A History Spanning almost a Decade

The company was founded in 2012. It has then raised more than $500 million from backers, venture capitalists, and crypto enthusiasts, who include Andreessen Horowitz and Greylock Partners, two leading American venture capital firms. The company has also gotten funding from Y Combinator, American seed capital, and start-up accelerator that has launched more than 2000 companies, including Airbnb, Stripe, Reddit, and Dropbox.

The company claims that it has more than 35 million verified users spread in more than 100 countries and territories worldwide. Besides, it has assets valued at more than $25 billion on its platform alone.

Coinbase's announcement came around the same time that Bitcoin, the world's first cryptocurrency, hit record highs. Kyle Samani, co-founder and managing partner of MultiCoin Capital, an investment firm that channels funds into tokens, cryptocurrencies, and blockchain companies, said that going public is a big event for the blockchain industry.

He added that the turning point for the asset class is a form of legitimization and a means of providing investors with the chance to bet on crypto as a whole and not particular coins.

Bitcoin climbed to an all-time high of $23,000 on Thursday, December 17, and has more than doubled its value this year. Meanwhile, PayPal Holdings Inc. is now allowing crypto holders to use their cryptocurrency holding to complete transactions. Besides, Square, an online payments service provider, and MicroStrategy Inc. have put substantial money into Bitcoin, prompting market analysts to predict that even more institutional investors are about to join the industry.

Scanty in Details but Big on Controversy

Coinbase has not come out clear about its plans, so it remains unclear the nature of IPO that the company might undertake. However, a traditional IPO where banks arrange for institutions with the immense financial clout to have the first go is unlikely since such an arrangement is not favorable to its employees and many crypto enthusiasts.

While speaking to a prominent online publication, the exchange's co-founder Fred Ehrsam said his company is spiritually designed to go public through an offering that relies on digital tokens distributed on a blockchain. However, it is not clear if the SEC would endorse such an arrangement.

If the U.S. agency refuses to license that option, another avenue open to Coinbase is undertaking a direct listing. Alex Wilhelm, a veteran tech journalist, described this option as an arrangement where Coinbase sells its shares directly to the public. He said that Slack and Spotify recently used the same approach with varying levels of success. Wilhelm added that Coinbase is an exemplary, archetypical candidate for this form of listing primarily because of its burly balance sheet.

A Chance to Cash Out

The IPO will present a chance for early stakeholders such as CEO Brian Armstrong and venture capital companies Andreessen Horowitz and Greylock Partners to cash out. However, the bright road ahead is riddled with bumps. The giant cryptocurrency exchange is mired in controversy that stems from leadership wrangles. Nathalie McGrath, who served the company as the VP of People, has accused Balaji Srinivasan, Coinbase's former CTO and a general partner at Andreessen Horowitz, of leading by fear and money.

However, Jeff Roberts, a crypto markets expert and columnist at CoinDesk, counters McGrath's opinion. He said that Balaji's style, which switched the company's direction to a non-corporate vision is effective despite being mildly abrasive.

However, Roberts agreed that despite leaving the arena, Balaji's leadership mode did not go well with the vast majority of the staff, creating more damage than good, leading to a mass migration of useful team members.

The crypto-enthusiast says the resulting situation is unfortunate because the brains who migrated would have made the IPO process far smoother.

Transforming the Narrative

Roberts said that it is interesting that Coinbase has gotten this far. When the company was launched, Bitcoin was nothing more than a fad. Many government officials disliked the idea of cryptocurrencies. The said officials saw the cryptocurrency only as an important to criminals who used it to commit crimes and launder money.

Not much has changed. Some policymakers, including the outgoing U.S. President Donald Trump, continue to treat the cryptocurrency with contempt. However, such sentiment has not stopped the growth of Bitcoin. The past two years have brought the most significant acceptance by mainstream financial and investment institutions.

A new crypto fund that Ehrsam runs has attracted investment from endowments of Stanford and Harvard universities.

Final Thoughts

Coinbase, the leading crypto exchange by trading volume, has announced confidentially filing for an IPO with the SEC. If it comes to pass, the event will be a significant milestone for the crypto industry, crying out for recognition. However, a lot is happening in the industry. For instance, many investors have gravitated to Bitcoin, which they now consider a safe hedge against inflation that will follow the many fiscal and monetary policies that governments are implanting to curb the effects of the current health pandemic.

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