Coinbase More Likely to Opt for Direct Listing Given $8 Billion Valuation
Coinbase might soon forge a path for crypto exchanges to launch IPO’s or direct listings in the U.S following rumors that the San Francisco based firm is set to go public. A recent publication on Bloomberg Law by L2 Counsel founder, Louis Lehort, now argues that Coinbase is more likely to opt for a direct listing as had earlier been reported by Reuters. He said,
“Today, Coinbase is archetypal for the sort of company that might consider a direct listing: it is wealthy, having raised over $500 million during its time as a private company, and has a significant brand and following.”
He went on to add that the firm’s latest private financing round, which saw it raise $300 million, scaled the crypto exchange’s value significantly. While Coinbase is yet to confirm on which path it will take ongoing public, a direct listing would be in line with recent trends in Silicon Valley where startups are gradually embracing this approach in a bid to get better deals for their ideas.
Normally, it is the underwriters who include investment banks that take up the role of transitioning a private entity into a public one. This is done through the creation of new blocks of shares that are then sold in secondary markets like Wall Street. With a direct listing, underwriters who have been acting as ‘middlemen’ are eliminated from the process, an approach that could save companies tens or hundreds of millions, according to Lehort.
Should Coinbase choose to go this direction, its existing shareholders will sell their shares directly to the public through secondary markets. Though a rally in its share price is not guaranteed, the crypto exchange has done quite well for itself, given a 35 million strong customer base in its 8-year existence period.
It has since earned a reputational slang in the crypto industry ‘Coinbase Effect,’ which means that a digital asset price is likely to go up. This stems from the platform’s significant market share that has, in the past, boosted liquidity and rates for new digital currencies listed within its ecosystem.