Coinbase isn’t being cryptic about its intention to IPO

Darren Sinden

In what one might describe as a turn up for the books one of the largest cryptocurrency exchanges has indicated that it will seek to IPO and gain a stock market listing in 2021. Coinbase, which is headquartered in California said that it had filed confidential paperwork with the SEC which if approved would see […]

In what one might describe as a turn up for the books one of the largest cryptocurrency exchanges has indicated that it will seek to IPO and gain a stock market listing in 2021.

Coinbase, which is headquartered in California said that it had filed confidential paperwork with the SEC which if approved would see the company become the first major cryptocurrency business to go public.

Coinbase launched in 2012 to allow investors to trade in Bitcoin from wherever they were on the planet. It now boasts more than 35 million users in over 100 jurisdictions and has US$25 billion of assets on its platform. The Coinbase exchange has traded more than $320 billion worth of underlying coins and the business has more than 1000 employees according to its website.

Coinbase is no stranger to fundraising having previously secured more than $500 million from venture capitalists such as Andreesen Horowitz, Tiger Global, Y combinator and many others.

Coinbase offers trading in five leading cryptocurrencies alongside a number of less well-known names as well as e-wallets and crypto custody services. It has an institutional trading platform and crypto payments service for merchants.

The news of Coinbase’s application to IPO comes as Bitcoin enjoys an extended move higher. Having gained 13% in November it has moved to new all-time highs above $26,300 per coin.

Cryptocurrencies have been moving more towards the mainstream of late. Payment platforms PayPal and Square have made access to Bitcoin commerce and payments much easier in recent months. Square went so far as to make a significant investment of $50 million into Bitcoin in early October. On which it has now likely doubled its money. Whilst billionaire investors such as Paul Tudor Jones have also bought into the cryptocurrency story.

From the market’s standpoint Bitcoin futures at the CME and rival exchange Bakkt have helped to legitimise cryptocurrency as an asset class. Open interest in Bitcoin futures reached a notional value of $7.90 billion this week helped by the rapid rise in the value of the underlying coins.

2020 has been a surprisingly good year for US IPOs with more than 460 companies choosing to make their stock market debuts through the process. The vast majority of these issues have gone on to trade and stay above their floatation price.

What interesting to me is that Coinbase would choose to go public via an IPO when it has two alternative routes at its disposal. The first would be to list through a SPAC or Special Purpose Acquisition Company. Effectively a listed shell company into which an existing business reverses.

SPACs have attracted high profile names this year including Draft Kings and Virgin Galactic and thinking thematically this seems to be a better fit for a business such as Coinbase to me.

The other alternative would have been for Coinbase to issue its own equity-linked cryptocurrency or token. Think Ripple (XRP) but with added benefits.

If the Coinbase IPO does go ahead I would be very interested to ask management if these alternatives were discussed and if they were why were they were discounted?

Predicting a valuation for Coinbase at this stage would just be pure speculation but if it does become a public company surely the likes of the CME and ICE would run a slide rule over the business with a view to a potential acquisition at some stage in the future.

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