Cryptocurrency exchange Coinbase will be conducting its own Initial Public Offering (IPO). Following a successful year that saw the exchange generate over $1.8 billion in revenue. BiC looks at the bullish and bearish scenarios of the potential Coinbase IPO.
The market has historically witnessed a lot of fundraising events, such as ICOs and IEOs. But the arrival of IPOs onto the crypto market is a significant development being led by none other than Coinbase.
Coinbase is one of the largest digital assets exchanges in the industry. There is a reason why such significance is being placed by analysts and market players alike on the decision of the Coinbase management team.
The term “Coinbase effect”, which signifies significant price boosts for assets immediately after their listing therein. This may well convert not only onto the exchange’s own shares, but on the market as a whole.
First crypto company to go public
Coinbase is the primary gateway of a significant percentage of all crypto activities on the market. Coinbase’s essential legalization on the traditional market as a share-traded entity cannot be downplayed.
The question of price, is now up in the air as investors, both traditional and crypto, are salivating at the prospect of owning a share of the major exchange.
Bloomberg states that Coinbase’s shares were traded between $350 and $375 based on a recent private Nasdaq auction. Which means that the pre-IPO value of the company is likely to be in the region of $100 billion. Making it the most capitalized legal entity in the industry.
Coinbase has also decided to opt for a direct listing approach. Bypassing investment bank underwriting. This is a clear indication of its adherence to the principles of decentralization, disruption and all the other virtues of the blockchain industry.
The approach is also a clever marketing ploy. Which will reassure clients that the exchange is still in line with its path of development that is highlighted by its status as a “people’s exchange.”
A direct listing is also a means of attracting greater capital and liquidity with added transparency. This is sure to please decentralization and cryptocurrency fans. But the company opted against issuing new shares, allowing more investors to buy them.
The approach is also a means of avoiding the associated costs of IPOs, such as the services of underwriters. The exchange is in for a good start with pricing. However Its final listing share price is highly dependent on bitcoin and other cryptocurrencies. as these will be acting as the main funds investors will be contributing to the IPO.
Why is now the right time to go public?
The last two quarters have been instrumental in determining the decision of Coinbase’s management made into going public. With over $7 billion in bitcoin being invested over the period and $20 billion being diverted from gold exchange-traded funds, the management team has decided not to wait for better times, but capitalize on the current situation.
Such an approach is justified. Considering that the likes of Morgan Stanley, Goldman Sachs, Blackrock and others are investing in bitcoin as a means of saving value. The move made by Coinbase is also being viewed as the first major step in establishing a legal and reliable bridge between the decentralized and traditional financial markets that can attract a slew of investors who have been waiting for such a development as reassurance in the viability of the crypto market.
The billowing price of bitcoin has also inflated Coinbase’s capital by over 8 times over the past few months. And market sentiment is hinting at continued growth. As exemplified by the likes of Tesla, having bitcoin on the balance sheet is a sure way of increasing capital and attracting investors. Thus inflating the capitalization and market value of the company.
The potential impact on the crypto market
Coinbase’s IPO can have both a negative and positive impact on the crypto market. As its position is that of a cornerstone of the industry. Thus any sways it may undergo will affect the rest of the superstructure resting on it.
The positive scenario that can be foreseen with a successful launch of Coinbase’s IPO is that the price of major cryptocurrencies will go up as a result of bolstered investor confidence and the influx of new players willing to partake in the crypto market.
The DeFi market will follow in tow. As its services will experience heightened demand among users rushing to buy digital assets to take part in the trading frenzy that is sure to follow the initial sale of Coinbase’s shares.
There is, however, also a negative scenario that can play out as a barrier-building event, rather than a barrier-breaking one. This is demonstrated by the fact that Coinbase is a crypto-only company that does not allow fiat trading.
Which would only increase caution among casual investors. Another possibility is one that is tied to the uncertainty of IPO participation levels and the fallout that comes after. As can be pictured by Facebook’s IPO, the turnout was vast. But share price collapsed the following day as the joy subsided.
The same could happen to Coinbase if the arrival of the exchange on the traditional market proves to be underwhelming among average investors.
The results would be disappointment among crypto audiences and a certain drop in prices of cryptocurrencies that had been bought up in advance in expectation of a major price boost.
Though Coinbase’s IPO is a milestone for the crypto industry as a whole. There are risks that the sale of its shares will either spur a major upheaval in prices, or lead to a blow that would undermine investor confidence in digital assets. Which has been growing of late.
Whatever the scenario that plays out, more likely Coinbase will be a winner as it establishes itself on the traditional financial market as well.