Expected to be one of 2021’s milestone events for the crypto community, Coinbase’s IPO will allow investors to buy shares in the company directly
Popular US-based cryptocurrency exchange, Coinbase, announced its intentions to pursue an Initial Public Offering (IPO) on December 17, 2020, becoming the latest in the list of high-profile startups seeking to go public.
The announcement represented the crypto community’s long-standing quest for legitimacy, but did not divulge any details on how the exchange would structure its offering. With both the IPO and the crypto market’s price on a surge in the new year, here is everything you need to know to be prepared for when Coinbase goes public with its IPO.
A conglomerate of crypto-related businesses, Coinbase, was founded in 2012 to offer a simple platform for crypto users to conduct transactions. The company has grown multifold since then, with reports suggesting that it has regularly been profitable in recent years.
During its latest fundraising exercise in 2018, Coinbase was valued at $8 billion. It is likely that the crypto giant will seek a much higher valuation for the IPO due to the accelerating growth of the cryptocurrency industry in the past three years. Working from publicly available information, research company Messari indicated that Coinbase may potentially seek IPO valuation as high as $28 billion.
While traditional IPOs constitute banks arranging for institutions to get early access to the stock for a fixed price, Coinbase co-founder Fred Ehrsam has previously hinted that the company will adopt a more decentralized approach.
However, experts have concluded that it is unlikely the US Securities and Exchange Commission (SEC) will greenlight an offering involving digital tokens on a blockchain. Thus, the other option for the crypto exchange would be to follow companies like Spotify and Slack in pursuing a direct listing in which it sells shares directly to the public.
Coinbase’s revenue largely depends on trading commissions, which have been on a rise with the price of Bitcoin currently hitting around $38,000. However, the exchange has been long preparing for the IPO as seen by the dozens of acquisitions in recent years that have helped diversify its revenue model beyond trading fees.
Once the company goes public, investors can either speculate on the share price using derivatives, or take ownership of the underlying shares of the company directly through share dealing.
While the price of Coinbase shares is currently unknown, one must use both technical and fundamental analysis in determining share price.
Technical analysis deals with chart patterns, technical indicators and historical price action, whereas a fundamental analysis focuses on the foundations of the company, including its net revenue or profit and loss statements.
It is crucial to note that Coinbase’s share price is expected to be volatile, owing to the inherent volatility of the crypto markets.