Coinbase is going public in a direct listing. And why wouldn’t it?
I’m a simple man (in some ways), so I view the crypto world with trepidation. To the extent I acknowledge its possibilities, it’s from a historical, sociological perspective.
Last week, for instance, I spent some time reviewing what, exactly, money really is. The point was to say that while I’m not personally inclined to own any Bitcoin (let alone any other cryptocurrencies), at the most basic level, there’s nothing that’s any less “real” about them than the dollar or the euro or the yen.
Money is based on giant networks of trust. Without trust, most forms of money are worthless, and the ones that aren’t don’t work very well. Ancient barley money had some inherent value, for example, but its capacity to facilitate transactions efficiently was severely limited.
Read more: How Bitcoin Can Replace The Dollar
That’s what’s interesting about Bitcoin’s most recent surge. It’s been driven, in part anyway, by increased adoption. And what does increased adoption actually mean? Well, it means more people are beginning to trust it.
From Mastercard, to BNY Mellon, to Square, to Tesla, to [fill in the blank with your favorite super-adopter], Bitcoin is gathering adherents. Last week, its market value topped $1 trillion.
Note that when I say “collectively imagine” in the chart, I’m not necessarily trying to be derisive. Bitcoin, unlike, say, gasoline or corn, has no actual value, just like dollars have no actual value unless you’re cold and you have a lot of them plus the capacity to set them ablaze.
Coinbase’s filing is predictably silly. There’s a reference to Satoshi Nakamoto and the company notes that it has no headquarters, and thus no address for its principal executive offices, although it does “currently lease” a variety of facilities across a number of locales “for purposes of collaboration and team building.” That, even as the filing suggests there’s not much physical “collaboration and team building” going on right now, due to COVID.
“Our telephone number is (415) 843-1515,” Coinbase helpfully notes.
While the company may lack traditional corporate trappings, it does have revenue and, notably, profits. Coinbase made $322 million last year on revenue of $1.14 billion. That latter figure doubled (and then some) from 2019.
Again: At least it’s profitable. That’s more than you can say for a lot of public companies, especially following the pandemic.
Some of the statements in the filing will either seem amusingly quaint in a future dominated by crypto or else totally ridiculous. I don’t pretend to know which.
“We enable customers around the world to store their savings in a wide range of crypto assets… and to instantly transfer value globally with the tap of a finger on a smartphone,” the filing reads.
“Value” being the key word there. It’s still not clear if there is, in fact, any value in crypto.
The company also says it “invest[s] heavily in regulatory compliance by working with regulators around the world to shape policy.” They’ll need to do more of that, because as Janet Yellen made clear earlier this week, the establishment isn’t convinced.
According to Axios, Coinbase was valued at $100 billion in a recent private share sale. Over nearly a decade, Coinbase has raised in excess of a half-billion dollars. The company lists a veritable who’s who of the VC world as shareholders, including Andreessen Horowitz and Union Square.
As Bloomberg noted, Coinbase’s offering “could be the first major direct listing to take place on the Nasdaq. All previous ones, including Spotify, Slack, Asana, and Palantir, were listed on the NYSE.”
Coinbase provides a handy, bullet point list of crypto risk factors. To be sure, the list of risks for any business is theoretically infinite. It’s impossible for a company filing to enumerate the entire universe of risks. So, in that respect, Coinbase is no different from anyone else.
However, some of the following statements (from the filing) would make me exceptionally nervous. You can read them for yourself below (the italics are mine):
- Our operating results have and will significantly fluctuate due to the highly volatile nature of crypto.
- Our net revenue is substantially dependent on the prices of crypto assets and volume of transactions conducted on our platform. If such price or volume declines, our business, operating results, and financial condition would be adversely affected.
- A majority of our net revenue is derived from transactions in Bitcoin and Ethereum. If demand for these crypto assets declines and is not replaced by new crypto asset demand, our business, operating results, and financial condition could be adversely affected.
- The future development and growth of crypto is subject to a variety of factors that are difficult to predict and evaluate. If crypto does not grow as we expect, our business, operating results, and financial condition could be adversely affected.
- Cyberattacks and security breaches of our platform, or those impacting our customers or third parties, could adversely impact our brand and reputation and our business, operating results, and financial condition.
- We are subject to an extensive and highly-evolving regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition.
- We operate in a highly competitive industry and we compete against unregulated companies and companies with greater financial and other resources, and our business, operating results, and financial condition may be adversely affected if we are unable to respond to our competitors effectively.
- We compete against a growing number of decentralized and noncustodial platforms and our business may be adversely affected if we fail to compete effectively against them.
- As we continue to expand and localize our international activities, our obligations to comply with the laws, rules, regulations, and policies of a variety of jurisdictions will increase and we may be subject to investigations and enforcement actions by regulators and governmental authorities.
- We are and may continue to be subject to material litigation, including individual and class action lawsuits, as well as investigations and enforcement actions by regulators and governmental authorities, which may adversely affect our business, operating results, and financial condition.
- If we cannot keep pace with rapid industry changes to provide new and innovative products and services, the use of our products and services and, consequently, our revenue could decline, and our business, operating results, and financial condition could be adversely impacted.
- A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, and our business, operating results, and financial condition may be adversely affected.
- We currently rely on third-party service providers for certain aspects of our operations, and any interruptions in services provided by these third parties may impair our ability to support our customers.
- Loss of a critical banking or insurance relationship could adversely impact our business, operating results, and financial condition.
- Any significant disruption in our products and services, in our information technology systems, or in any of the blockchain networks we support, could result in a loss of customers or funds and adversely impact our brand and reputation and business, operating results, and financial condition.
- Our failure to safeguard and manage our customers’ fiat currencies and crypto assets could adversely impact our business, operating results and financial condition.
- The loss or destruction of private keys required to access any crypto asset held in custody for our own account or for our customers may be irreversible. If we are unable to access our private keys or if we experience a hack or other data loss relating to our ability to access any crypto assets, it could cause regulatory scrutiny, reputational harm, and other losses.
- The registration and listing of our Class A common stock differs significantly from an underwritten initial public offering.
- The price of our Class A common stock may be volatile, and could, upon listing on the Nasdaq Global Select Market, decline significantly and rapidly. Market volatility may affect the value of an investment in our Class A common stock and could subject us to litigation.
- The dual class structure of our common stock will have the effect of concentrating voting control with those stockholders, including our directors, executive officers, and their respective affiliates, who held in the aggregate % of the voting power of our capital stock upon the effectiveness of the registration statement of which this prospectus forms a part. This ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.
- None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Following our listing, the sales or distribution of substantial amounts of our Class A common stock, or the perception that such sales or distributions might occur, could cause the market price of our Class A common stock to decline.