Coinbase offering (ticker: COIN) was the headline for this month in the cryptocurrency and blockchain domains. The largest cryptocurrency exchange in the world went public on Apr 14. However, it did so via a direct listing on the Nasdaq stock exchange, instead of the initial public offering (IPO) method. Before its listing, Coinbase reached a value above $100B, a testament to the successful business model and high profits from cryptocurrency trading. However, there are allegations that the Coinbase team dumped all their shares, as soon as the listing finished.
Coinbase Direct Listing Vs IPO
It appears that there is a slight confusion here. Coinbase didn’t take the Initial Public Offering (IPO) route. Instead, it went direct to the public and opted for a direct listing, bypassing investment banks who take care of all the procedures and make the shares available to the public. It typically includes issuing new shares of the company.
A direct listing is different. No new shares are created and team members sell their existing shares to make a market. Since the project includes no intermediaries, additional commissions don’t have to be paid to third-party underwriters. It’s preferred by the companies like Coinbase who are unable or unwilling to pay third-party commission, avoiding the issuance of new shares and lock up periods.
IPOs have certain safety nets, which are unavailable in a direct listing. There is no lock-up period for insider shares either in the direct listing. However, IPOs allow for greater exposure to institutional buyers and better chances of being valued/sold at a higher price.
Setting The Record Straight
No, the Coinbase team didn’t dump all their shares. The rumor spread was based on false data and wrong interpretations. For instance, the below datasheet widely quoted as the evidence for insiders most or all of their shares on retail has a problem – it doesn’t show the total shares owned by the individual, but merely the ones listed for selling. This is the entire mechanism for direct listing that market marking and liquidity come from existing team held shares.
However, the accusatory rumors and the likely subsequent effect on the market point to the growing information asymmetry in the crypto market. It points to a growing trend of taking information out of context and in a misleading way. But that’s not it. The latest saga also shows that even highly seasoned crypto influencers and thought leaders are immune to it. But as always, there is a better explanation available willing to look past the surface level misinformation.