• Friday, March 29, 2024
businessday logo

BusinessDay

Here’s why Coinbase listing is a big deal for crypto world

SEC sues Coinbase in widening crackdown on crypto exchanges

US-based global cryptocurrency firm Coinbase is going ahead to list its shares directly on the Nasdaq exchange on Wednesday.

Although many reports describe the move by Coinbase as an initial public offer (IPO), experts have said there is a difference with a direct listing.

An IPO requires a pre-set share price which could be as high as the investment bankers think the market can take. The figure is usually based on tentative expressions of interest from institutional investors.

However, for direct listing a group of investment bankers does not set the share price, rather the market on the initial day of trading determines the starting share price. This is usually preceded by a 10-minute display only during which investors are expected to state their bids while existing shareholders of Coinbase present their offers. The information from the buyers is then calculated by Nasdaq as ‘current reference price’. Coinbase and its investment adviser Goldman Sachs will then decide whether the price is acceptable and the listing should go on.

Read Also: Dewstech launches Quicoin to decentralise payment system

Coinbase shares received a reference price of $250 each on Tuesday evening, which would value the company at $65 billion based on all its outstanding shares, according to a report by the New York Times. The company starts trading on the Nasdaq on Wednesday under the ticker the ‘COIN’.

Companies like Spotify, Slack, and Palantir took the option of direct listing in 2018, 2019, and 2020 on the New York Stock Exchange (NYSE) respectively. Coinbase is Nasdaq’s first major direct listing.

Founded in 2012 in San Francisco, Coinbase is arguably the first cryptocurrency exchange in the world to be listed on the Nasdaq, a traditional exchange and marks a watershed in the public adoption of cryptocurrency by institutional investors.

The company reported last week that its revenue soared 847 percent in the first three months of 2021 to $1.8 billion and that it now has 56 million verified users. With the listing, investors get the opportunity to look into the financial records of the largest cryptocurrency company in the United States which is something other operators in the market are yet to do.

By volume of transaction, Coinbase is the second-largest cryptocurrency exchange in the world behind Binance which sees $47 billion in crypto trading volume in a 24-hour period.

The listing enabled investors who are still skeptical about directly being involved in the cryptocurrency market the option of owning stock in a Securities and Exchange Commission-approved business that facilitates the transitions. That option means the investors transfer the direct risks to the business while they still benefit from the profits in the market.

The announcement was mainly responsible for a new all-time high price by bitcoin on Wednesday. The world’s largest cryptocurrency raced to $64,300 on Wednesday morning for the first time since eclipsing its more recent record in March a day earlier.

The Coinbase listing also resurrects the question of what the future of bitcoin and other cryptocurrencies are. At the moment its primary use is as a store of value and financial speculation. Only a few companies are willing to accept it as a means of payment due to its high volatility. Many early buyers have grown quite rich by merely holding or buying at a dip when prices fall.

But some investors are asking “can it be more than an asset class?”

Please enable JavaScript to view the comments powered by Disqus.
Exit mobile version