2021 is shaping up to be a landmark year for the cryptocurrency landscape. As bitcoin continues to break new all-time high prices, one of the industry’s leading exchanges, Coinbase, will go public via direct listing, heralding a new era for digital finance.
according to bloomberg, shares of coinbase traded between $350 and $375 according to a recent nasdaq private auction, indicating a pre-ipo value of the company of up to $100 billion.
how bitcoin’s coin base has increased
As we can see from the chart above, as the price of bitcoin has increased, so has the volume of transactions that coinbase has experienced. As the final quarter of 2020 brought new all-time highs for the world’s leading cryptocurrency, trading volume on the exchange nearly doubled, fueled by an unprecedented level of institutional traders.
In the chart above, we can see how btc recovered during Q4 2020 and Q1 2021, growing by nearly 1,000% compared to Q1 2020.
While this exponential growth has certainly given coinbase a significant amount of leverage in its plans to go public, could the exchange’s arrival on wall street, in turn, build much more confidence in the bigger picture? broad range of cryptocurrencies for the average investor?
coinbase’s trust in bitcoin
It appears that coinbase’s decision to opt for a direct listing rather than through an investment bank subscription was made as a subtle nod to the company’s long-standing slogan from 2013: “welcome to the future of the money”, while justifying their status. as a “people exchange”.
By adopting the direct listing approach, Coinbase has the ability to receive a higher level of liquidity while utilizing a level of transparency which can result in a more natural way for the stock market to price shares. actions of the company. .
That said, the final exchange price is likely to be heavily influenced by the fortunes of cryptocurrencies like bitcoin by the time the coinbase goes public. there is no doubt that coinbase will have a more successful opening day trade if btc is recovering at the same time, although the exchange already enjoys a high level of trust among its user base, which is likely to continue to grow regardless of the performance of bitcoin.
The growth of the cryptocurrency landscape, regardless of the role bitcoin plays in the long term, will determine the sustainability of the coin base. However, for now, the exchange is likely to take advantage of the short-term success of BTC as a means of entering the market with a jump start.
recovering the coinbase effect
The term “coinbase effect” has been coined to refer to the significant price increases that cryptocurrencies typically receive as an immediate result of being included in the coinbase. This effect occurs because the coin base tends to be the main gateway to crypto for many investors who avoid more complex and lesser-known exchanges or investment methods.
however, after going public, coinbase may well have a completely different “effect” on the market, which could see coins rise in value as a key industry figure collides with the stock market .
As one of the major exchanges in the ecosystem, a successful launch could forge a knock-on effect which, in turn, will boost the prices of cryptocurrencies like bitcoin, ether and other altcoins in the market. the influence of the mainstream currency base could even bring further optimism and validation to the defi markets.
The importance of a company that is solely based on cryptocurrencies going public could be far reaching in terms of investor confidence in an industry that has been somewhat mysterious and shrouded in uncertainty to the casual investor. Coinbase’s successful listing will go a long way in breaking down the barriers between the world of cryptocurrencies and more mainstream investment.
however, this currency base effect can also go both ways. if, on the other hand, coinbase’s arrival on the market is disappointing, it could cause cryptocurrency prices to drop immediately afterwards.
why choose a direct list?
Contrary to what some market commentators had anticipated, Coinbase opted for a direct listing rather than launching an IPO.
In the past, a direct listing meant a company could only float its existing shares, while an IPO allows for the creation of new shares. although the us The Securities and Exchange Commission (SEC) had recently lifted such restrictions, Coinbase decided against the idea of creating new shares for the offering, meaning it would not dilute its existing capital. Direct listing will also mean that the exchange will avoid some of the costly requirements associated with an IPO, including the use of services such as subscribers.
It is significant that Coinbase likely sees the direct listing as an opportunity for anyone to buy and trade shares in the company, which could pave the way for new investors to enter the world of crypto for the first time.
Although the possibility of a cryptocurrency-based company launching an IPO would have caught the attention of many, the reality is that IPOs are generally restricted to institutional investors who would be willing to buy large volumes of shares in a single transaction. rather than the members of the public and retail investors that the exchange aims to inspire to go public, who would only buy small groups of shares in one fell swoop.
Coinbase’s approach to choosing a direct listing shows that there is no favoritism towards institutional investors at the IPO stage, which is probably good news for crypto enthusiasts who value the freedom to trade in a decentralized market that actively rejects the central powers holding all the cards.
coinbase looks to pay homage to its roots as it goes public. In this unprecedented move for a cryptocurrency exchange, Coinbase’s next steps may well set the tone for what will be a year to remember for the bitcoin world.
this is a guest post by peter jobes. The opinions expressed are entirely my own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.