Rumors of an Initial Public Offering (IPO) by Coinbase have been flying for much of this year ever since it appeared there was high demand for Coinbase shares, but very much a shortage of sellers.
The company is in its late stages of fundraising, currently looking to raise half a billion from private investors at a valuation of $8 billion.
It isn’t very clear how that is going because they’ve been trying to raise funds for much of this year, yet delays here and there means they have not seen a funding round for 2018 so far.
Whether they will, remains to be seen, because once you get to half a billion or a billion, private investors are at risk of overpaying compared to the initial IPO share price.
Yet Coinbase might need more funds to expand as they’ve been buying companies left and right, some, like Earn, for $100 million.
They in profit, at circa $90 million last quarter, but early investors in addition may want an exit with half of this $500 million they hoping to raise planned for buying out previous investors.
That would presumably be in preparation for an IPO, but does the crypto exchange, which very much likes ethereum, dare hold an Initial Coin Offering (ICO)?
They’ve been playing by the book so far, with the Silicon Valley manual given to them by YCombinator sometime in 2011.
Knowing the game, they played it fairly well. Get all the licenses and jump through all the regulatory hoops, knowing they’re now a barrier to your competitors. Tap into the right investors so that they now have a conflict of interest as far as funding a start-up challenger is concerned. Expand into the surrounding areas. Keep being a nice and cuddly start-up while building a monopoly.
Blame the game not the player, they perhaps rightly say, but few are in a better position to change the game than Coinbase.
An IPO would make them a Wall Street playground. The little people there have no say, while big boy hedge funds play a different sort of game.
The entire market cap of cryptos can be pocket change in that space. Nor do fundamentals matter much as Musk can perhaps attest.
Yet the rules are at least known, while in an ICO they’d have to hold SEC’s arrogant hands. On what exchange would the token be listed? How do they prevent it from making its way to decentralized exchanges (dexs)? How would the ICO itself be held? Do you have a whitelist, a limit on how much people can buy, a method to prevent bots scooping it all up?
Would SEC approve it? And if they do, how long would it take the mainly lawyer bureaucrats to get their heads around the reality of outdated rules now applying to ICOs?
And the biggest question of all: would an ICO raise more than an IPO?
Coinbase can probably afford all the lawyers to go through all the legal requirements for an ICO. Making the token represent ownership of the company, have dividends and so on, is probably one of the easiest aspect.
Estimating which one would raise more, however, is probably difficult. An IPO would be limited to one exchange in one country. It would be easy for banks to tap into it, brokers, pension funds, just as it would be easy for hedge funds to short it to the ground.
An ICO would be open to the entire globe. It can be listed on hundreds of exchanges. As it would be a security, pension funds would still be able to easily access it. Hedge funds however might find it more difficult to short sell.
A Coinbase ICO would further have the secondary effect of growing the crypto market and thus Coinbase’s customer base. That’s because the easiest way to do it would be to give tokens in return for eth or bitcoin. So nocoiners that still want part of Coinbase have to get coins first.
Some $12 billion has been raised in ICOs this year. EOS alone raised $4 billion. Telegram raised close to $2 billion. Coinbase is valued at around $8 billion, but how much it would be able to raise in an IPO is not clear.
Nor is it clear how much demand there would be for a Coinbase token, but Binance Coin, for example, had a market cap of $2.4 billion in January and currently stands at $1.25 billion.
Meaning there is potential for Coinbase to raise a lot in an ICO and perhaps more than in an IPO, but that would take guts and courage to look at the risks head on.
The main risk being that Clayton’s SEC tries to prevent it because his wife’s Goldman Sachs wouldn’t be able to get a huge cut out of a people’s offering. Bankers would perhaps not be happy to see a huge part of their business go directly to the people. Yet heads would turn, and if Coinbase pioneers the way, then executives around the world might sit down and wonder whether they should follow.
The new world doesn’t come by itself, we have to make it. Coinbase needs to seriously consider an ICO, and if they decide against it then they should clearly explain why they’re not being a player in the new game.