Coinbase is going public. The US-based cryptocurrency exchange has filed for a direct listing in the NASDAQ, in a drive that could end up valuing the company close to $100 billion, which could make it the biggest IPO in 2021.
Coinbase, a brainchild of Brian Armstrong and Fred Ehrsam, came into being in 2012. Driven by the urge to make cryptocurrency trading faster and easier, the exchange has risen to become the biggest trading volume in the U.S.
Coinbase has more than 43 million retail users and more than 7,000 institutional clients. It also boasts of a clientele base of more than 110,000 partners in over 100 countries. While growth in recent years has been choppy, the exchange appears to have hit the high knots.
In 2020, Coinbase revenues more than doubled to $1.3 billion, up from $533.7 billion generated in 2019. The exchange generates a good chunk of its revenues from cryptocurrency transactions. In 2020, 96% of its total revenues came from transactions, with subscription revenues increasing 126% to $45 million. Likewise, profits totaled $322 million with assets in custody rose to more than $90 billion.
Bitcoin price surging to record highs above the $40,000 mark might also affirm what would turn out to be an impressive year on revenue and earnings growth. Given that the company makes most of its money from transaction and trading fees on the exchange, it is in for a big payday given the increased crypto mainstream adoption.
Management has already reiterated its commitment to growing more stable revenue from subscription products and services.
Taking advantage of the ever-growing demand for digital assets amid increased mainstream adoption by mainstream financial players, Coinbase management believes now is the best time to take the company public.
Direct listing on the NASDAQ will allow investors of all walks of life to own a piece of a company that looks cheap, going by the expected revenue growth on cryptocurrency prices, shuttering records, and ballooning to all-time highs.
The IPO will result in the company trading in the NASDAQ under ticker name COIN. Its main goal with the listing is to generate a significant amount of money that will allow it to offer cryptocurrency-based financial services to billions of people using smartphones. The company is looking to offer its service to over 3 billion people.
Given that the stock will be listed on the NASDAQ, any person with a brokerage account that deals in U.S. stocks will be able to buy the stock once it goes public. Besides, would-be investors will be able to buy the stock via any mobile trading app.
However, it is still unclear as to the number of shares that will be made available as the exchange does not plan to issue new shares. The company is also yet to set the price at which the shares will go on sale.
A direct listing is often seen as an ideal way of going public for companies that already have a strong market presence, such as Coinbase. In this case, the company won’t need the help of underwriters to popularize the IPO. Doing away with underwriters reduces the costs of listing significantly.
By cutting out middlemen in the form of Intermediaries, Coinbase should avoid regulatory hurdles as part of the listing process. In this case, the exchange will not have to file underwriter’s contracts with the Securities and Exchange Commission.
The U.S. company has already filed preliminary documents with the regulator, all but affirming it means business when listing on the NASDAQ. The IPO will allow the company to set a true market price given its significant cash flows. The listing will also not prevent the exchange from accessing the public markets to raise additional capital in the future.
The public listing will also allow the company to prevent the issuance of new shares that could lead to dilution of already existing shares. Current investors are to offer part of their holdings that other investors are to jostle of.
Coinbase competitive edge
Coinbase accrues its edge in the crypto space, given its high liquidity that makes it a preferred destination for retail traders and institutional investors eyeing a piece of the burgeoning cryptocurrency space. A lifetime trading volume of over $400 million attests to the number of people using the exchange to do crypto business.
Likewise, trading volume has been increasing in recent years from $17 billion in 2018 to $21 billion in 2019 and $38 billion in 2020. Trading volume can only increase as more people eye ways of trading the various cryptocurrencies in the market.
Similarly, Coinbase is one of the most solid and stable exchanges with over $90 billion in assets poised to be the preferred destination for most people looking to venture into the sector. The exchange supports 90 digital assets, with customers being given an opportunity to invest in more than 45 digital assets.
A confirmation that Coinbase is the exchange that was used to process a $1.5 billion Bitcoin investment BY Tesla affirms how it’s become a preferred exchange for institutional investors.
Coinbase has moved to enhance its competitive edge by enhancing security on the platform. At a time when hackers are increasingly targeting exchanges, the exchange has had to leverage advanced security features in a bid to protect people’s data and holdings.
Investments in regulatory compliance and cybersecurity should help the company earn more trust from customers.
The timing for Coinbase IPO could not have come at a better time given the growing interest and demand for cryptocurrencies from retail and institutional investors as more people look for ways to gain exposure to the burgeoning space.
With institutional investors increasingly eyeing opportunities, the exchange is likely to draw some whales’ investment dollars.