Crypto craze is gaining importance with lot of discussions happening about it in the mainstream media. Coinbase IPO
Coinbase is the largest crypto platform in the US. They have made their public debut via a direct listing.
For clarity, Direct ListingProcess(DLP), is the process where the business sells shares directly to the public without the help of any intermediaries.
In a direct listing, the employers and investors sell their existing stocks to the public. In an IPO, a company will be selling part of the company by issuing new stocks. A direct listing also does not raise money.
For clarity, “Coinbase is a secure online platform for buying, selling, transferring, and storing digital currency. Our mission is to create an open financial system for the world and to be the leading global brand for helping people convert digital currency into and out of their local currency.”
The arrival of Coinbase on the public markets of Coinbase COIN is hailed to be a grand moment in the world of cryptocurrencies. It is important to note that the company was over a decade ago with the genesis of bitcoin BTC/USD and today the company stands at a point that several industry members call as a tipping point.
The Coinbase business by itself is highly volatile. Coinbase stocks according to a Market Watch publication per MoffettNathanson’s Ellis is not for the faint heart.
Underwriting is the process by which banks or other financial institutions pledge to buy all the unsold shares when new shares are issued. They sign and accept the liability under an insurance policy, thus guaranteeing payment when a loss or damage occurs.
Since this is a direct listing, Coinbase are floating their shares on a stock exchange without hiring banks to underwrite the transaction as in an IPO.
Normally, direct listing is an option for companies who are not large enough to benefit from an initial public offering. Also companies who can’t afford underwriting or if they do not want to share dilution or are avoiding lockup periods choose the direct listing process. Direct listing is less expensive than an IPO. If there is an intermediary, there will be a safety net that the shares will sell, but in the absence of an intermediary, there is no safety net ensuring that the shares will sell.
The ability of the shareholders to be able to sell their shares on an open market is limited and it can get difficult to find buyers in cases where the shareholders want to sell their shares. Buying stocks that are directly listed is not bad for investors but getting buyers can feel discouraging at times.
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