Hodl* On To Your Hat: Coinbase Goes Public​

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By Adelina Budulan​


The Story

Coinbase, the largest cryptocurrency exchange in the United States, is set to go public via a direct listing on the Nasdaq in the near future (Financial Times). Fuelled by the rapid growth of bitcoin and other digital coins, the company’s net revenue has soared from US$282.9 million for 2019 to US$1.1 billion for 2020 (Nasdaq). As long as the market for cryptocurrencies remains buoyant, Coinbase will reap the benefits, since most of the company’s revenue derives from the commission it charges on each cryptocurrency transaction it facilitates. Coinbase’s self-declared mission is to create an “open financial system for the world” (Coinbase).

What It Means For Businesses And Law Firms

Renewed interest from institutional investors and retail investors has prompted a “cryptocurrency bull market”, which has been enhanced by the role of the ongoing pandemic in accelerating the shift from cash to digital payments (Financial Times). However, regulators remain sceptical of recognising cryptocurrency as a mainstream asset class. The significance of Coinbase’s listing is that approval from the US Securities and Exchange Commission could be viewed as “a tacit regulatory approval of assets traded on its platform” (Reuters). At the same time, the prospect of buying Coinbase stock would represent a way for investors to gain indirect exposure to the cryptocurrency market, allowing even more room for speculation.

Moreover, Coinbase’s choice of a direct listing over a traditional IPO is telling. Direct listings involve a company listing its existing shares on an exchange, as opposed to creating new shares and hiring underwriters to market them to prospective investors. The appeal of such an alternative stems from the lower costs and fewer regulatory hurdles involved, as well as from the avoidance of share dilution. Recently, the likes of Spotify, Slack, and Palantir have all opted for direct listings on the New York Stock Exchange, possibly signalling a shift in common practice. Coinbase could become the first major direct listing on the Nasdaq (Bloomberg).

Fenwick & West is advising Coinbase on its listing, while Latham & Watkins is representing the financial advisers on the transaction, including Goldman Sachs, J.P. Morgan, Allen & Co., and Citigroup (Bloomberg Law). The former's work might have involved advising Coinbase on filing the requisite regulatory documents, including its prospectus, while Latham & Watkins might have assisted the financial advisers with drafting the necessary documents regarding their contractual relationship to the cryptocurrency exchange.

*the joys of bitcoin lingo

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