Coinbase, the San Francisco-based cryptocurrency exchange, is going public on April 14. The company will trade under the ticker COIN and list 114,850,769 shares on the NASDAQ with an initial valuation of $100 billion.
Instead of following the traditional initial public offering (IPO) route, Coinbase plans to post its shares straight on the NASDAQ exchange via a direct listing, a technique pioneered by big names like Spotify and Palantir in recent years. Whereas an IPO involves a company creating new shares and having an underwriter that buys them for a set price and then sells them to the market, in a direct listing a company sells existing shares and has no underwriter.
But what is Coinbase and why is this such as important development in the cryptocurrency market?
The Coinbase business model
Coinbase was founded in 2012 by Brian Armstrong, a former engineer at Airbnb, and Fred Ehrsam, who was a trader at Goldman Sachs. Their mission was to make investing and transacting in cryptocurrencies easier, more efficient, and fairer.
The company has since risen to become the largest cryptocurrency exchange in the U.S. Even though there are numerous other exchanges around the world with considerably larger trading volumes, including Binance, Huobi, and OKEx, Coinbase’s growth has been incredible lately.
It has just reported preliminary results for the first quarter of 2021, with revenue surging to $1.8 billion. This is a ninefold increase from the first quarter in 2020 and more than the $1.3 billion that the company made in the whole of 2020. Net income for the first quarter is expected to be in the range of $800 million, compared to $322 million in calendar 2020. In the past three months alone, the verified userbase has risen 30% to 56 million people.
So how does Coinbase make money? It earns fees and commissions when customers buy or sell cryptocurrencies, though there is no charge to store cryptocurrencies in customer wallets. The fees include margin fees, where Coinbase charges 0.5% for purchases and sales, although this figure can vary depending on market conditions.
