Major American crypto exchange Coinbase may enter the US stock market before the end of this year or early next. On July 9, Reuters ...
Major American crypto exchange Coinbase may enter the US stock market before the end of this year or early next. On July 9, Reuters reported this, citing three sources close to the company. At the same time, Coinbase is likely to abandon the IPO and conduct a direct listing, which involves the sale of securities of the original investors instead of issuing new shares. The listing of the crypto site still needs to get approval from the US Securities and Exchange Commission (SEC), but if successful, Coinbase will become the first crypto exchange to trade on the stock market. How the company prepares for listing, who else is going to enter the stock exchange and is it worth waiting for a wave of IPOs from crypto startups.
Coinbase Secret Preparation for Listing
According to sources from Reuters, while preparations for listing Coinbase are in full swing, this is not yet a final decision: the plans and timing of the company's entry into the stock market may change. The exchange has not yet applied for registration, but it is already negotiating to attract investment banks and law firms. The Coinbase press service declined to comment on "rumors or speculation," and the SEC also refrained from commenting.
However, aside from rumors, there is some circumstantial evidence that Coinbase is preparing for listing. So, in May this year, JP Morgan, one of the largest investment banks in the world, began providing services to Coinbase and Gemini. At the time, the bank's representatives hinted that the organization could benefit from the future IPO of Coinbase. And on July 8, Coinbase announced on its blog that it had appointed former Facebook VP Paul Greval as General Counsel to manage relationships with financial regulators. It should " pave the way for the next phase of the crypto industry's adoption ." Coinbase previously denied preparing for an IPO, but noted that it is working on a revenue restructuring.
Also on August 14, Coinbase plans to hold its first Investor Day - a meeting of exchange management with investors, during which the company talks about its work and plans, and investors ask questions about the site's activities. Due to the ongoing pandemic, the event will be held online. The exchange did not elaborate on whether Investor Day was linked to the listing preparation rumors, noting that the purpose of the meeting was to provide " a broader understanding of cryptocurrencies and blockchain " among participants. However, usually such meetings take place just before listing on stock exchanges.
Direct listing instead of IPO
One source told Reuters that Coinbase is considering a Direct Public Offering (DPO) instead of the more traditional Initial Public Offering (IPO).
The main differences between direct listing and IPO:
- The company does not create new shares, but sells securities that are already on the OTC market - from the initial investors of the company, its employees and top management.
- There is no attraction of new funds - they are attracted through private investments in public equity capital.
- There are no underwriters to help organize the filing of applications and conduct transactions, as well as the first to buy the issued shares. Investment banks usually act as underwriters. Their absence means that the issuing company does not need to share the listing proceeds with anyone.
- Less expenses - when preparing for an IPO, a company spends a lot of money on audits, correcting shortcomings, the work of consultants, lawyers, preparing documents, preparing roadshows for investors, supporting transactions, issuing securities, and so on. With direct placement, these costs are not. Underwriters charge a commission per share, which can range from 2% to 8%. This means that a significant portion of the capital raised through an IPO goes to compensate intermediaries, sometimes reaching hundreds of millions for an IPO.
- No lock up period - current investors and company employees can immediately put their shares up for sale. In the event of an IPO, they would not be able to bring the paper to the market within six months.
Direct listing is a convenient way for company investors to withdraw their investments into money. However, he does not exclude a later public offering of shares. It can also make trading more successful. After all, this is the most cost-effective way to give Coinbase users access to a company's stock while maintaining its legal structure. This way of going public has become more and more popular in recent years, especially among tech companies. For example, Spotify and Slack recently had a direct listing.
Direct listing is a predictable choice for Coinbase. As a reminder, the exchange is one of the largest and oldest crypto platforms on the market. It was founded in 2012 and has over 35 million users in 32 countries. Coinbase is also now one of the most regulated exchanges in the world, which allows it to legally operate in the United States. Since its founding in 2012, the company has raised a total of $ 547 million from 55 investors, according to Crunchbase.
How big Coinbase capitalization is is unclear today. The financial statements of the exchange are closed, which is typical for private companies. However, according to media reports, in 2017, its income amounted to about $ 1 billion , in 2018 - $ 520 million , in 2019 - $ 488 million , and profit - $ 146 million.In October 2018, after another round of funding, Coinbase was estimated at $ 7.7 billion .
Regardless of which listing method Coinbase chooses, the market will see its financial statements anyway: information on income, expenses, and how the company has dealt with the ups and downs of the market. This is a big step for an industry that lacks financial transparency.
Crypto companies go public
Coinbase is far from the only crypto company looking to enter the stock market. Recently, this trend has become more and more distinct.
Mining companies. Back in 2017, the Canadian mining company Hive entered the Toronto Stock Exchange .
Chinese mining giant Bitmain filed a filing with the SEC last October with funding from Deutsche Bank. However, earlier this year, the crypto company canceled plans to enter the exchange - according to rumors, this is due to an audit by the US Department of Justice of its activities.
In November last year, another mining company and Bitmain's main competitor - Canaan - held an IPO on NASDAQ and raised $ 90 million. At the start, the shares were worth $ 9– $ 11, now they have fallen below $ 2.
At the end of this June, the Chinese manufacturer of ASIC miners, Ebang, raised $ 101 million during the IPO, with an estimate of $ 685 million. After the listing, the company is going to launch its own exchange and mining pools.
Crypto exchanges. In March of this year, the Australian crypto exchange INX, registered in Gibraltar, after two years of preparation, filed documents with the SEC for an IPO in New York. The company hopes to raise $ 130 million, and is currently working on obtaining a BitLicense from the New York City Department of Financial Services. The money raised from the IPO will be used to fund the new INX crypto exchange and the new INX Securities security token platform.
In the same month, the Swedish exchange BTCX announced an IPO in the third quarter of this year. The company was founded in 2012 and is one of the largest crypto platforms in Scandinavia.
At the end of this June, the major South Korean Bithumb also announced its decision to list , choosing Samsung Securities as its underwriter. This will be the exchange's second attempt to go public - last year, the site tried to list in the United States through a reverse takeover deal, but this did not happen. The company now hopes to conduct a local listing. Bithumb is rumored to have internal problems and doubts about market appeal. Bithumb is also trying to challenge a $ 69 million bill from the Korean National Revenue Service for transactions with foreign clients.
Crypto companies. Last November, California-based crypto bank Silvergate Capital raised $ 40 million on the Nasdaq during its IPO, with an estimate of $ 229 million and plans to raise $ 52 million.The company filed an application for listing in November 2018, having previously submitted documents to the Hong Kong Stock Exchange.
Early this July, BlockFi's lending blockchain service also announced preparations for listing in the second half of 2021. To this end, the company is looking for a person for the post of chief financial officer, who would have 15 years of experience in the financial and stock markets, and who is also negotiating with potential investors about an additional round of financing.
Ripple and Binance listings have been rumored for several years now. In January this year, at the World Economic Forum Summit in Davos, the head of the company, Brad Garlinghouse, said that IPOs would soon become more common in the crypto industry. He also hinted that Ripple itself will become one of the public companies before the end of the year. “ In the next 12 months, you will see IPOs in the crypto and blockchain space. We're not going to be the first, but we don't want to be the last either. Therefore, I think that we will be together with the leaders ... This is a natural evolution for our company , ”he said at the forum. Since 2012, Ripple has attracted about $ 300 million in investments from a dozen investors. During the last round of investments last year, the company was valued at $ 10 billion.
We think investors are looking forward to the return on their investment. If the company is really preparing for a listing, then it is likely expecting an improvement in market conditions and a new round of bull market for XRP. However, an IPO does not yet guarantee success. For example, Ripple's IPO would hardly have dispersed the price of the company's tokens that have been depreciating for too long.
How crypto listings will affect the industry
The move towards an IPO marks a radical shift in how cryptocurrency companies raise capital. There is an obvious move away from initial coin offering (ICO) and other non-traditional ways to get funding. But even a few years ago, it seemed that they would become the main way of raising capital for the crypto industry. However, a tarnished reputation and problems with regulators forced most companies to abandon them. Nowadays, startups that are determined to play a long legal game clearly prefer listing on the stock exchange or direct financing.
In the listing trend, it is publicity that is important, not just raising capital. To go public, a company must provide public access to its financial statements and legal information, as well as regularly report profit and asset values. Therefore, public status and trading stocks on the stock market is a way to gain maximum confidence in yourself.
Of course, you shouldn't expect stock exchange listing to become the ubiquitous standard for crypto companies - it doesn't suit everyone. Thus, most start-ups in the industry simply will not be able to fulfill all the regulations of the regulators and attract the costs associated with listing, and decentralized platforms have an inappropriate structure for this. But for mining companies, listing is the only way to gain access to public market liquidity.
If the SEC approves the listing of Coinbase, a key player in North America, going public will be another step towards legitimizing and accepting cryptocurrencies. First of all, it will give a signal to institutions that the regulator is “reconciled” with the new asset class. It would also draw attention to the industry and attract, albeit indirectly through equities, new investors to the market (for example, in the US, unqualified retail investors do not have access to investments in non-public companies). Moreover, the market would also receive detailed information on the state of affairs in one of the main exchanges in the market. And for Coinbase itself, the listing would provide an influx of new funding, increased liquidity and opportunities for development.
Given the scale of Coinbase, going public could have a positive impact on the market as a whole. We think most large crypto companies are already ready to enter the stock markets, but they are waiting for regulators to present clearer requirements for the industry. Coinbase's filing is likely to also accelerate the adoption of clear legislation regarding cryptocurrencies.
