Usually, it’s best to ignore rumors.
But there’s a major rumor floating around the cryptocurrency space this week… and the implications are huge.
Allegedly… Coinbase, the largest U.S. crypto exchange, is looking to go public.
Last week, Reuters broke the story that Coinbase plans to announce its first “investor day” for August 14. The report also said the exchange is talking to investment banks and lawyers—an important step before becoming a publicly traded company.
If Coinbase follows through on the rumors, it would become the first U.S. crypto exchange to go public.
A spokesman from Coinbase declined to comment. But the rumor is worth paying attention to…
Coinbase is a giant in the crypto industry. The exchange boasts over 35 million users in more than 100 countries and holds over $7 billion assets in its custody.
It’s been a private company for its entire 8-year history. Making the jump to a public company would be a massive success, especially considering all the regulatory scrutiny in the crypto industry.
In short, the next few months could tell us a lot about the future of cryptocurrencies… and it could have implications for the entire financial system.
When a company goes public, it has to reveal years of financial information. In other words, we’ll get an inside look at one of the biggest and most successful crypto exchanges in the world.
For example, Coinbase will need to disclose how much profit it makes off the millions of trades it handles. According to reports, in 2017 (when bitcoin soared to $20,000) Coinbase’s revenue was around $1 billion.
We’ll also see how much investors think the company is worth. Coinbase raised over $500 million from private investors over the years. As of its latest funding round in 2018, the company was valued around $8 billion.
Another interesting detail is which path Coinbase takes in order to become a public company. The traditional “Wall Street way” would be to do an initial public offering (IPO)… which involves a lot of investment banking fees and a flashy roadshow to get investors excited about the company.
But some companies are shunning expensive IPOs. They’re choosing a different path, known as a “direct listing.”
Under a direct listing, a company doesn’t create new shares. Instead, it gives existing investors the ability to sell their shares to the public. It also avoids many of the high fees that investment banks charge for handling an IPO.
Most recently, companies like Slack and Spotify have been successful with direct listings.
If Coinbase goes with a direct listing, it would be fitting, since it cuts out the Wall Street middlemen. Cutting out third parties is one reason cryptos continue to mature into a massive asset class. A direct listing would also speed up the process. It could happen before the end of 2020.
Of course, there are a lot of hoops that need to be jumped through. The Security and Exchange Commission (SEC) must give its approval before Coinbase can proceed.
And I’m curious how Coinbase handles all the extra regulatory hurdles.
You see, there are still a lot of grey areas when it comes to crypto regulation. So far, Coinbase has done a great job following all the SEC’s rules and regulations. The exchange limits its products to just a small handful of reputable cryptocurrencies—including bitcoin, ethereum, bitcoin cash, and more.
And it makes its customers go through know your customer (KYC) and anti-money laundering rules (AML). These laws put Coinbase on par with major stock brokerages.
If Coinbase goes public, it would be a major milestone for the crypto community. It would be a huge opportunity for capital to flow into a new industry. It would also help bring legitimacy to the crypto space, which has many supporters who prefer little to no regulation… and want an alternative to traditional Wall Street practices.
Plus, it could give us a new way to profit from the growing crypto industry. Instead of buying cryptocurrencies, investors could simply invest in Coinbase. In other words, we could profit by investing in the company that handles the “plumbing” in the crypto market.
If the rumors turn out to be true, we’ll soon find out how profitable that market is…
