Coinbase, the biggest U.S. cryptocurrency exchange, is planning to go public through a direct listing. This will be the first cryptocurrency exchange to tap the public markets to raise capital.
Coinbase quickly has become one of the better-known exchanges for trading Bitcoin, Ethereum, Litecoin and other altcoins. The company has raised over $540 million in funding as a private company and has more than 43 million users in over 100 countries. Its assets under custody currently stand at $20 billion, with over $14 billion accumulated since April.
Direct listings allow companies to skip elements of the traditional IPO by removing the need to price and sell a block of new equity. Instead, a company merely lists its shares, which then become available for direct trading. Only companies with big enough social profiles usually qualify for direct listings.
Coinbase has been under a lot of scrutiny in recent months after a New York Times report revealed many internal complaints about discriminatory treatment of women and people of color. Before that, Coinbase CEO Brian Armstrong received backlash for failing to come out in support of #BlackLivesMatter, choosing instead to write a tone-deaf article about Coinbase being a mission-driven company that wanted to be neutral to all social and political issues. He said "stick to the mission or get fired" to nearly 1,200 employees globally. Justified or not, Bitcoin's meteoric rise after breaking the $20,000 ceiling in December will probably give investors plenty of confidence in Coinbase.
Ironically, a few weeks later Brian wrote against a political ruling that impacted Coinbase directly. The Financial Crime Enforcement Network (FinCEN), a unit of the U.S. Treasury Department, wants crypto exchanges to collect a lot more data about individuals transferring more than $3,000 in cryptocurrencies into private wallets. Firms like Andreesen Horowitz (a16z) urged FinCEN to withdraw its proposed KYC rule or extend the comment period due to blatant violation of procedure by Secretary Mnuchin weeks before leaving office.
Roblox, a gaming platform, said it would use a direct listing to go public, before an SEC investigation delayed the offering. Palantir Technologies (PLTR) and Asana (ASAN) both used direct listings to go public last fall, Slack Technologies (WORK) went public with a direct listing in April 2019, and Spotify Technology (SPOT) went the direct listing route in 2018.
On Thursday and Friday, spillover from market drama on Wall Street took down many of the major U.S. crypto exchanges (with good reason). Coinbase suffered performance degradation per its status page, and reports circled on crypto Twitter and Reddit that they were disabling USD transfers. Other exchanges like Kraken experienced outages too, as users rushed to buy Dogecoin (DOGE) and other crypto lottery picks.