2021 is shaping up as a reference year for the cryptocurrency landscape. While Bitcoin continues to discover new historical price highs, one of the industry’s leading exchanges, Coinbase, will be made public through a direct list, heralding a new era for digital finance.
According to Bloomberg, Coinbase shares traded between $ 350 and $ 375 based on a recent private Nasdaq auction, indicating a pre-IPO value of up to $ 100 billion.
How Bitcoin has grown Coinbase
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As we can see in the chart above, as the price of Bitcoin has grown, so has the trading volume that Coinbase has experienced. As the last quarter of 2020 led to new all-time highs for the world’s first cryptocurrency, the volume of trading on the stock exchange almost doubled, bolstered by an unprecedented level of institutional traders.
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In the chart above, we can see how BTC has increased during the fourth quarter of 2020 and the first quarter of 2021, growing by almost 1,000 percent compared to the first quarter of 2020.
While this exponential growth has undoubtedly given Coinbase a significant amount of leverage in its plans to go public, the arrival of the exchange on Wall Street, in turn, could bring much more confidence. to the broad panorama of cryptocurrencies for the average investor?
Coinbase’s reliance on Bitcoin
It seems that Coinbase’s decision to opt for a direct quote instead of subscribing to investment banks has been made as a subtle gesture to the company’s slogan since 2013: “Welcome to the future of money,” all justifying its condition of “exchange of persons.”
By adopting the direct quotation approach, Coinbase has the ability to host a higher level of liquidity while using a level of transparency that can result in a more natural way for the stock market to set a price of company action.
That said, the final price of the exchange will likely be heavily influenced by the fortunes of cryptocurrencies like bitcoin by the time Coinbase goes public. There is little doubt that Coinbase will have a more successful opening day if BTC meets at the same time, although the exchange already enjoys a high level of trust among its user base, which will likely continue to grow independently. bitcoin yield.
The growth of the cryptocurrency landscape, regardless of the role that Bitcoin will play in the long run, will determine the sustainability of Coinbase. However, for now, the exchange is likely to take advantage of BTC’s short-term success as a means to enter the market with some initial momentum.
Recovering the Coinbase effect
The term “Coinbase effect” has been coined to refer to the significant price increases that cryptocurrencies often receive as a result of immediate listing on Coinbase. This effect occurs because Coinbase tends to be the main gateway to cryptocurrencies for many investors who avoid more complex and lesser known exchanges or investment methods.
However, after it became public, Coinbase could have a completely different “effect” on the market, which could see currencies increase in value as a key industry figure collides with the stock market.
As one of the major ecosystem exchanges, a successful launch could forge a coattail effect that, in turn, will drive up prices for cryptocurrencies like bitcoin, ether and other altcoin pillars in the market. The influence of Coinbase in general could even bring greater optimism and validation to DeFi markets.
The importance of a cryptocurrency-based company being made public could be far-reaching in terms of investor confidence in a somewhat mysterious industry surrounded by uncertainty for casual investors. Coinbase’s successful listing will go a long way in breaking down the barriers between the world of cryptocurrencies and the most widespread investment.
However, this Coinbase effect can also go both ways. If, on the other hand, the arrival on the Coinbase market is disappointing, it could lead to a fall in the prices of cryptocurrencies immediately afterwards.
Why choose a direct listing?
Contrary to what some market commentators had predicted, Coinbase opted for a direct quote instead of launching an initial public offering.
In the past, a direct listing would have meant that a company could only float its existing shares, while an IPO allows the creation of new shares. Although the U.S. Securities and Exchange Commission (SEC) had recently lifted these restrictions, Coinbase ruled against the notion of creating new shares for the offering, meaning it would not dilute its existing assets. The direct listing would also mean that the exchange would avoid some of the costly requirements associated with going public, including the use of services such as insurers.
Significantly, Coinbase is likely to see direct listing as an opportunity for anyone to buy and trade shares of the company, potentially paving the way for new investors to enter the world of cryptocurrencies for the first time.
While the possibility of a cryptocurrency-based company launching an IPO would have raised many eyebrows, the reality is that initial public offerings are generally restricted to institutional investors who would be willing to buy large volumes of shares in a single transaction, rather than members of the public and retail investors that the exchange aims to inspire the IPO, which would only buy small groups of shares at once.
Coinbase’s approach to choosing a direct listing shows that there is no favor towards institutional investors in the IPO, which will probably be good news for cryptocurrency enthusiasts who value the freedom to trade in a decentralized market that actively rejects the central powers that own all the cards.
Coinbase wants to pay tribute to its roots when it goes public. In this unprecedented move for a cryptocurrency exchange, the following Coinbase steps can set the tone for what needs to be remembered for the bitcoin world.
This is a guest post from Peter Jobes. The views expressed are wholly their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.