Published: July 14th, 2020
Coinbase, a leading cryptocurrency exchange based in San Francisco, California, in the U.S., is planning a move that may make it the first firm of its kind to go public. The digital currency exchange is going ahead with plans to list in the stock market.
Coinbase Inc., one of the leading cryptocurrency exchanges in the U.S., has started planning for a stock exchange listing, according to an article on Reuters. The action that may come as early as this year will make the exchange the first of its kind to go public.
However, this listing is subject to the approval of the Securities and Exchange Commission of the U.S. (SEC), an independent federal agency that proposes securities regulations, enforces such laws, and regulates the securities industry.
If the watchdog gives its green light, it would mean a landmark endorsement and victory for the cryptocurrencies and their advocates. Cryptocurrency fans have a collective quest for mainstream adoption of digital currency.
Sources close to the plans who requested anonymity because of the confidentiality of the dealings revealed that Coinbase might pursue stock exchange listing in Q3 or Q4 of 2020 or early next year. However, the sources said that such plans are subject to change. The sources added that Coinbase is yet to inform SEC of intentions to list formally. However, the exchange has initiated talks with headhunters to find a suitable law firm and an investment bank.
A Coinbase spokesman that Reuters contacted for comment did not confirm or contradict the news. Instead, the spokesman said that Coinbase does not offer remarks on speculations or rumors. The SEC also did not comment on the matter.
The exchange’s co-founder, Fred Ehrsam, while talking to tech author, Jeff John Roberts, hinted that Coinbase has an inherent gene that may guide its transition into a publicly held company. However, Ehrsam was quick to mention that such a change of hands is a lot likely to happen via some form of coin offering. The tech guru added that even the company’s employees would be dismayed if Coinbase went for a garden variety initial public offering (IPO) common in Wall Street.
Alex Wilhelm, a Silicon Valley reporter and senior editor for TechCrunch, is adamant that Coinbase is suited for a direct listing. He likens the profile of Coinbase to those of Spotify and Slack, who have adequate cash reserves and high valuation. Besides, he believes a direct listing would make more sense to cryptocurrency fans who frown upon traditional IPOs.
Regardless of the route taken, Coinbase has to earn the SEC's approval, which may be a tad difficult considering the SEC's long-standing cynicism towards cryptocurrency.
While the federal watchdog has categorized some cryptocurrencies as securities and subjected them to securities’ regulations, it is yet to release elaborate guidance, classification, and regulation about most virtual coins.
Because of this discrepancy, several cryptocurrencies have struggled or are still grappling with legitimacy concerns among mainstream users. Besides, the general public remains wary of the speculative nature of digital currencies and their predisposition to money laundering.
One source said that the option of a direct listing is always on the table. According to this source, Coinbase, which by the last private fundraising it conducted in 2018, was valued at more than $8 billion may choose to go public through a direct listing rather than via the traditional IPO route.
A company that goes public through a direct listing is not obligated to sell new shares as is the norm with IPOs. Besides, existing shareholders do not have to abide by lock-up restrictions that dictate when such owners can never divest their holdings after the public sale. Instead, the available shares held by employees and the other shareholders are sold to the general.
However, the preparations by Coinbase show that it prefers an IPO. That is if the rumors that the exchange is headhunting for a law firm and an investment bank are true. A direct listing does not require an investment bank since there are no new shares to sell.
Coinbase, which was founded in 2012, is one of the very prominent cryptocurrency exchanges globally. It has some 35 million users from almost all the territories and jurisdictions in the world.
The platform’s users trade in most prominent crypto coins, including Bitcoin, Ethereum, Litecoin, Ripple, and Stellar Lumens.
Among the notable individuals and entities that have invested in the exchange include Union Square Ventures (USV), Vikram Pandit, the former CEO of Citigroup, and the New York Stock Exchange. Other part owners are Banco Bilbao Vizcaya Argentaria (BBVA), and Draper Fisher Jurvetson, an American venture capital firm.
Coinbase benefitted immensely from the 2017 Bitcoin boom when the price of the world’s first cryptocurrency shot from $1,000 to an all-time high of almost $20,000.
On Wednesday, July 8, the cryptocurrency exchange announced that it had hired Paul Grewal, the deputy general counsel of the social network giant Facebook, to be its chief legal officer.
Seemingly, most crypto enthusiasts have moved past the speculation and are anticipating the environment after the listing. Jeff Roberts even offered a peek into the five critical aspects to consider after the exchange completes the listing process. According to him, going public may come with a Coinbase Effect.
The Coinbase Effect is the phrase cryptocurrency fans use to describe the boost that most coins get after listing on Coinbase. The price surge happens because Coinbase is the premier crypto exchange and many crypto buyers’ gateway to the blockchain space.
Because of the iconic status of Coinbase, a successful listing may create a coattail effect that boosts the price of the major cryptocurrencies, Jeff Roberts speculates.
The grapevine is rife with rumors that Coinbase may list in the stock exchange. The move, if successful, will make it the first prominent cryptocurrency exchange to go public. Any progress, however, depends on whether SEC gives its nod. And while Coinbase has not confirmed the speculations, its high profile hire of a notable counsel hints to the coin bazaar’s move towards listing.