Coinbase's multibillion-dollar valuation means a rumored plan for a direct listing makes a lot more sense than an initial public offering (IPO), argues the managing partner of a legal firm.
- In a piece for Bloomberg Law, Louis Lehot of L2 Counsel said Coinbase was "archetypal for the sort of company that might consider a direct listing."
- Sources speaking to Reuters last month said Coinbase had begun the process of a direct listing – the exchange has so far declined to comment and a public valuation isn't known.
- In an IPO, a company creates shares for underwriters – typically investment banks – to distribute to its institutional network that sells on the public market. In a direct listing, the company sells shares to the public, cutting out underwriters.
- Coinbase would likely gain little from an IPO, Lehot said. It already has an $8 billion valuation, a recognized brand and a strong following: A roadshow ahead of an IPO would likely do little to drum up further enthusiasm.
- In fact, the exchange has more downside risk with an IPO, Lehot said: Underwriters can mark down Coinbase's valuation to sell more shares and maximize fees, a practice that has cost newly public companies tens, even hundreds of millions of dollars.
- L2Counsel's website says it is a California legal firm that takes companies from the startup stage to the point of an IPO.
- Thomas Kuhn, a macro analyst at Quantitative Economics, agreed with Lehot's sentiments, telling CoinDesk that Coinbase was rejecting a model that put companies at the underwriters' mercy.
- Past enthusiasm for tech stocks and the lack of equity exposure digital asset industry means there is already "significant interest" for Coinbase to go public, he said.
- Furthermore, an exchange that has listed assets on its own platform would likely be "quite comfortable with the pricing and market mechanics" of a direct listing anyway, he added.