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Coinbase Direct Listing (Formerly IPO): Everything You Need To Know

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  • Cryptocurrency exchange Coinbase has selected Nasdaq as the venue for its direct listing.
  • A direct listing is limited to existing shares, whereas an initial public offering (IPO) involves the creation of new shares.
  • Nasdaq Private Market has launched a secondary market for Coinbase stock ahead of the listing.

In January 2020, San Francisco-based cryptocurrency exchange Coinbase announced plans to go public via a direct listing.

The company shared the news in a blog post, in which it announced its intent “to become a publicly-traded company pursuant to a proposed direct listing of its Class A common stock. Such proposed listing is expected to be pursuant to a registration statement on Form S-1 with the Securities and Exchange Commission (the “SEC”).”

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According to TheBlock, Coinbase will list its shares on Nasdaq, though the company has not confirmed the report.

Direct listing vs IPO

Notably, Coinbase has opted for a direct listing over an IPO. In December 2020, there was widespread anticipation that the exchange would go public with an Initial Public Offering (IPO) following its submission of a Form S-1 draft registration to the US Securities and Exchange Commission (SEC).

A direct listing differs from an IPO in that it is limited to existing shares, where an IPO involves the creation of new shares. It enables Coinbase to bypass many of the onerous (and expensive) requirements of an IPO, including using the services of intermediaries known as underwriters. Prior to the announcement of its direct listing, reports circulated that Goldman Sachs would act as underwriter for a possible Coinbase IPO.

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Regardless, the public listing means that anyone will be able to buy and trade shares in Coinbase, potentially drawing a lot more investors into the industry. The listing would offer investors a stake in the company under the beam of the SEC’s regulatory headlamps.

Coinbase’s case is buoyed by the news that in December 2020, the SEC approved the New York Stock Exchange’s proposal to allow companies to raise capital in a direct listing. Although Coinbase plans to list on Nasdaq, the SEC’s decision has paved the way for a number of companies to opt for the direct listing route—including data analytics firm Palantir and games company Roblox.

However, the SEC has also taken a firm line against crypto companies in the past. It has chased after several companies which carried out initial coin offerings (ICOs) for running unregistered securities sales, and repeatedly blocked applications for a Bitcoin exchange-traded fund (ETF) on the grounds that the crypto market is prone to manipulation.

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Will the SEC, then, approve Coinbase’s direct listing, given that its fate is so intimately tied to the rest of the market?

Coinbase: the basics

Coinbase opened to the public in 2012. With the backing of about half a billion dollars from venture capitalists, the crypto exchange grew and grew, so far attracting over 35 million customers (according to data from July 2020). In December 2020, crypto market analysis firm Messari valued the exchange at $28 billion.

But what… is it?

Coinbase offers two services. The first, known simply as ‘Coinbase,’ is the cryptocurrency wallet and brokerage service so popular among the public. On Coinbase, users can buy and sell crypto within Coinbase using fiat currencies (i.e. ‘regular’ currencies like the dollar, sterling, or euro). It’s a brokerage, meaning that you technically buy and sell from and to Coinbase itself.

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Then there’s Coinbase Pro, a more advanced exchange where users can buy and sell cryptocurrencies from other users, comparable to the dozens of other exchanges.

How does Coinbase make money?

To make money, Coinbase charges several different fees on its brokerage app. There are purchasing fees, more expensive for smaller purchases, trading fees and transaction fees, the latter of which apply to those wishing to move funds out of Coinbase.

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These fees also apply to Coinbase Pro. It’s more expensive than its main competitor, Binance, but its selling point is its compliance with regulators. The US won’t allow Binance to operate in the US; it does so under an independent company, Binance.US.

Coinbase also has a venture capital arm, Coinbase Ventures, which invests in companies such as CoinTracker, Compound and BlockFi.

When will the Coinbase listing happen?

Given that the registration is currently under review and confidential, it’s currently impossible to know when Coinbase’s direct listing might take place.

What the Coinbase listing means for crypto

Brian Armstrong coinbase CEO Bitcoin
Coinbase CEO Brian Armstrong. Image: Coinbase

Coinbase’s listing offers investors and traders another way of playing the booming cryptocurrencies market, though with the peace of mind afforded by regulation from the SEC.

In this sense, investors gain access to a regulated company whose success tracks the crypto market without the need to custody specific tokens. And unlike buying crypto, shares in Coinbase would pay dividends.

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Coinbase has taken care to play nice with regulators. It’s shied away from listing privacy coins due to US regulators’ hard-nosed attitude against them; it’s also declined to list controversial coins like Tether, the US dollar stablecoin that’s currently under investigation by the New York Attorney General.

The timing of Coinbase’s submission of Form S-1 last December is noteworthy. Around that time, the SEC was making headlines for filing a lawsuit against Ripple over the XRP cryptocurrency, alleging that XRP constitutes a security, and that Ripple was distributing securities in unregistered sales.

Like many other exchanges, Coinbase has since suspended trading of XRP on its platform. In Coinbase’s case, the exchange is likely aiming to ensure that it’s fully compliant with the SEC in a bit to avoid any potential hiccups as its listing looms.

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Coinbase is also looking to address a recurrent issue that’s plagued it, and other exchanges: downtime during periods of cryptocurrency price volatility. Recent record trading volumes have driven traffic to the exchanges to new heights, putting their infrastructure under strain and causing outages. Coinbase is reportedly planning to break its “monolithic” infrastructure into “separate discrete services” in order to better scale in the event of load surges.

Secondary markets on Nasdaq and FTX

On January 25, Nasdaq Private Market launched a secondary market for Coinbase stock, enabling shareholders with vested equity, such as current and former employees, to sell shares. According to The Block, Coinbase shares on Nasdaq Private Market were matched at a price of $200, implying a valuation of around $50 billion.

Crypto derivatives exchange FTX, meanwhile, has been running a pre-listing futures contract market for Coinbase shares in collaboration with German capital markets firm CM-Equity.

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To buy an early stake in Coinbase, customers need to sign up for FTX and purchase some of the US-dollar-pegged stablecoin USDC, a coin which is incidentally run by Centre, a consortium that includes Coinbase and Circle.

USDC can be bought straight from exchanges like Coinbase in exchange for fiat currencies, or other cryptocurrencies, like Bitcoin and Ethereum. The USDC can then be traded for FTX’s tokenized Coinbase pre-listing stock.

On FTX, Coinbase shares have been trading significantly higher than on Nasdaq Private Market, at $277, implying a valuation for the firm of around $70 billion.

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Grayscale

Grayscale’s Top Executive Joins Robinhood as New Chief Compliance Officer

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Robinhood hires a new CCO, the chief compliance officer of Grayscale

Robinhood brokerage app has welcomed Benjamin Melnicki as a new Chief Compliance Officer, who is also the holder of the same position at Grayscale Investments. He joined Grayscale in early January this year.

At the moment, Robinhood’s cryptocurrency arm is facing scrutiny from financial regulators. Last year, Robinhood was a target of an investigation connected to anti money laundering and certain cybersecurity problems experiences by its crypto division.

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As reported by U.Today previously, later this year, the brokerage firm plans to roll out cryptocurrency wallets for its users. The trials of wallets will kick off in October and will allow customers to deposit and withdraw cryptocurrencies to addresses beyond Robinhood seamlessly.

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Average Aussie crypto portfolio grew 258% in FY 20-21, survey reveals

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The average portfolio size on Australian cryptocurrency exchange BTC Markets has grown from $577.65 (795.5 Australian dollars) to $2,069.16 (2849.5 AUD) in the financial year 2021, signaling a 258.2% increase in portfolio holdings, according to exchange data compiled by Statista on a recent BTC Markets survey.

Data on the survey shows that the average portfolio size of female and male investors in fiscal 20-21 on BTC Markets was $1,924.30 (2,650 AUD) and $2,214.03 (3,049 AUD), respectively. However, in 2020, the average portfolio size of female Aussie investors exceeded male investors slightly. 

Transaction data on the exchange also showed a pattern of growing investment demand with aging. Considering the data provided by BTC Market on Australia’s average initial investment, investors above 65 years old have invested roughly $3,158.03, the highest ofall demographics.

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Following an incremental reduction across the various age groups, the youngest cryptocurrency traders, ranging from 18 to 24 years, tend to make comparatively small investments, standing at $792.96 on average. While older Australian crypto investors outweigh the new generation in initial investment, the younger crowd shows comparatively more activity in terms of daily trades.

Resonating the findings above, a September report from financial comparison website Finder shows that one in six Australians own cryptocurrencies, amounting to $8 billion in total investment. The report suggests that, like many other users in advanced industrialized countries, Australians were increasingly viewing cryptocurrencies as a new asset class. 

According to Cointelegraph’s report on the matter, Bitcoin (BTC) is the most popular cryptocurrency for the Australian crypto market held by 9% of investors. Other popular investments include Ether (ETH), Dogecoin (DOGE) and Bitcoin Cash (BCH). The report showed that, despite the growth in crypto investments, a significant barrier to entry for Australians is the difficulty in understanding crypto and the risks related to volatility.

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Crypto Exchange

Switzerland to Impose Anti-Money Laundering Rules on Crypto Providers: Report

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FINMA requires all cryptocurrency providers to step up their game and monitor whether criminals use digital assets in illicit transactions.

The Swiss Financial Market Supervisory Authority – FINMA – would reportedly require local digital asset providers to take additional steps in preventing criminals from employing cryptocurrencies. The watchdog would also turn its sight towards bitcoin ATMs as it believes that drug dealers often use these machines.

FINMA Targets Criminals Operating with Crypto

According to a Finews report, Switzerland’s financial regulator – the Swiss Financial Market Supervisory Authority or simply FINMA – would closely supervise local crypto providers as an attempt to clamp down on money-laundering transactions.

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Swiss platforms and brokers dealing with digital assets would have to enhance their monitoring efforts and observe if bad actors employ cryptocurrencies. The Bern-based watchdog believes the initiative is “urgently necessary,” stressing that criminals use the asset class even to fund terrorism acts.

FINMA also turned its attention towards bitcoin automated teller machines. According to the regulator, drug dealers frequently use such ATMs as payment systems. It is worth noting that Switzerland is a relatively small nation, but its 130 Bitcoin automated teller machines place it in the sixth position among the countries with the most stations.

FINMA also passed an anti-money laundering provision according to which it lowered the threshold for unidentified crypto purchases from 5,000 Swiss Francs (CHF) to 1,000 CHF (around $1,080). Or, in other words, all financial providers dealing with digital assets have to collect data on anyone initiating transactions that exceed this amount.

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UBS: Crypto Regulations Could Spell Trouble

One of the leading banks in Switzerland – UBS – recently shared its views on the hot topic of digital asset regulations as it indicated that implementing certain rules might negatively impact the market.

Furthermore, the bank warned its customers that regulatory crackdowns can pop the “bubble-like” crypto markets. The Swiss bank also labeled the asset class as “speculative” alerting that it could be dangerous for professional investors:

“While we can’t rule out future price gains in cryptos, we see this as a speculative market that poses significant risks to professional investors.”

On another note, though, when the cryptocurrency market was booming at the beginning of May, UBS demonstrated a different attitude. Back then, it intended to enable its wealthy customers to receive digital asset exposure later in 2021 through third-party vehicles.

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