Outside being a cryptocurrency brokerage, Coinbase also offers custodial services for cryptocurrency storage for institutions, a cryptocurrency payment platform for businesses. The Coinbase platform also has its own cryptocurrency called USD Coin, a stablecoin with its value tied to the US dollars.
Last week on 14th April the Coinbase exchange went live with a ticker $COIN. Rather than going through the usual initial public offering (IPO) method, the company has listed shares of its stock on the Nasdaq exchange. Starting with an initial share price of $250, Coinbase IPO has exceeded all the expectation and is currently being traded at a price of approx $300.
What is an IPO?
Initial public offering (IPO) is a process whereby a private company can go public by sale of its stocks to the general public. It might be a new, young company or an old company that wishes to be listed on an exchange and hence goes public. Most times, firms can raise equity with the help of an IPO by issuing new shares to the public, or the existing shareholders can sell their shares to the public without raising any fresh capital.
The movement from a private to a public company can be an important time for private investors to fully realize gains from their investment as it invariably includes share premiums for current private investors. Meanwhile, it also permits public investors to participate in the offering.
In the Coinbase IPO case, investors will be allowed to key into the company’s IPO. Also, investors taking advantage of Coinbase IPO price (with the ticker $COIN) may find some quick gains because all crypto EFTs will at some point be required to maintain a holding of COIN. This entails profit-making.
Also, investors can also invest in Initial coin offerings (ICO) of new projects and make a good profit. But what is the difference between both?
ICO vs IPO
The coming of cryptocurrency brought many new investment options, such as ICO. So, as an investor, there are now various options for investment. If you wish, you can go with the popular Initial Public Offering (IPO) based firm, or you can go with the young start-ups with Initial Coin Offering (ICO). However, what is the difference between ICO and IPO?
IPO’s are majorly well-settled companies, whereas ICO is more or less of a young start-up and risky. For example, an IPO can be a 40 years construction firm, while ICO can be an 18 years old boy learning mobile app development in his father’s garage. The first one is a known profitable business with solid years of experience with a solid bank account. In contrast, the second one is still starting life and could be Mark Zuckerberg if his idea goes well or could also be forgotten if his ideas fall apart.
However, whether you choose to invest in the popular business or in a start-up, your goal is the same. You hope that both businesses will grow and your profit will grow as well.
Another significant difference between ICO and IPO is the regulatory oversight. For instance, it is a compulsory requirement to register with the regulatory authority for any company looking to issue an IPO. Any company looking to issue an IPO must create a legal document called a “prospectus“. The prospectus represents a legal declaration of its intention to issue its shares to the public, and it must meet specific standards of transparency.
ICOs, in other words, is another form of cryptocurrency that businesses use in order to raise capital. Through ICO trading platforms, investors receive unique cryptocurrency “tokens” in exchange for their monetary investment in the business. It is a means of crowdfunding by creating and selling a digital token to fund project development. For example, we have an exchange ICO created to raise funds for project development like; the BNB for Binance exchange, FTT for the FTX derivative exchange, and LEO for the Bitfinex exchange, etc.
Whereas, unlike tokens, when a company goes public through the means of IPO, investors can buy and own equity, meaning owning a share of the company.
Coinbase is a regulated USA cryptocurrency exchange and the first exchange to do an IPO. Coinbase is the major gateway of a significant percentage of all crypto activities on the market. The platform’s essential legalization on the traditional market as a share traded entity can not be overlooked.
The question of price is not being considered as investors; both traditional and crypto are salivating at the prospect of owning a share of the major exchange.
According to Bloomberg, the Coinbase share was traded between $350 and $375 based on a private Nasdaq auction. This means that the company’s pre-IPO value is likely to be in the region of around $100 billion. Thus, making it the most capitalized legal entity in the industry.
We can anticipate that because Coinbase has a large user base with solid revenue generation. They are in charge of a large portion of all coins in circulation (more than 11% of total BTC in the platform). So, we could say that the Coinbase IPO’s unveiling could turn up to become a game-changer in the cryptocurrency market.
Why is it a game-changer for crypto?
Coinbase is part of traditional finance. That is a platform where traders, investors or individuals can buy, store or trade cryptocurrencies. The introduction of the IPO will push for more adoption of the platform, which will increase the adoption of cryptocurrency at large. Also, it will increase the trust in cryptocurrency. While most people see cryptocurrency as a Ponzi scheme, the IPO will enlighten people about the use case of cryptocurrency. It will make people take cryptocurrency seriously.
Another factor that has been pushing investors away from cryptocurrency is the safety of their assets. But this introduction will make investors invest in the crypto market since revenues are highly correlated to the crypto market.
Street credit for Coinbase IPO
Most of the crypto analysts are hoping that the Coinbase IPO will give the cryptocurrency market increased validation. According to Dan Ives, a Wedbush analyst, “The Coinbase IPO is potentially a watershed event for the crypto industry and will be something the street will be laser focused onto gauge investor appetite”. Coinbase is a significant piece in the cryptocurrency ecosystem and is a barometer for the growing mainstream adoption of bitcoin and crypto in the years to come, he added in his note to clients.
Bitcoin, the top digital currency, has seen its value climb in the last few months, setting an all-time high price in April. This is a sign of more mainstream and institutional adoption. It is also imperative to note that major firms like Morgan Stanley (MS), Tesla have now adopted BTC. Also, PayPal is already accepting Bitcoin, meaning more adoption of cryptocurrency.
Coinbase IPO is a direct listing.
Coinbase is not doing a traditional IPO. It is going public through a direct listing instead. The present owners of Coinbase stock will convert their share to make them available for trading. By doing so, they are able to avoid hefty fees from investment bankers.
According to the Coinbase IPO filing, the company has listed 114.9 million shares for sale directly to the public.
Could Coinbase draw more exchanges to launch their IPO?
It is possible that more cryptocurrency exchanges could adopt the same pattern as Coinbase in the future. The IPO listing is an integral part of restoring investors’ confidence and also promoting the platform. So, we assume that other crypto platforms will launch their IPO soon.
Written by: Narender Charan