April 15, 2021 | Cryptocurrencies | No Comments
Coinbase has joined the Nasdaq market, which has been drawing much interest, but Coindesk clarifies that the move is not via Initial Public Offering (IPO). CoinDesk’s Managing Director of Research, Noelle Acheson, said Coinbase went public via direct listing, which is a new option available to companies looking to get listed in the stock trading market.
According to Ms. Acheson the clarification is important as the movement to go public “could shape the narrative of the digital asset industry in the future.” However, news media has been misbranding Coinbase’s action as IPO rather than direct listing, which could affect the cryptocurrency company’s equity strategy.
Direct Listing and Its Distinction from IPO
As the Managing Director of Research for Coindesk, Ms. Acheson pointed out that the differences between IPO and direct listing are material, and the misbranding is already causing confusion in the trading market. According to her, direct listing is a new approach to going public which quite interestingly, is suited to a crypto company.
Unlike the shares of an IPO that are distributed at a pre-established price; direct listing shares do not have a pre-established share price.
The pre-established price of an IPO is set by investment bankers based on their estimation on how high the market will bear a price. Investment bankers usually receive a percentage of the total amount raised by an IPO; usually by as much as 7%. They base their estimation on preliminary expressions of interest coming from institutional investors.
In a direct listing, the market’s reaction on the initial day of trading day influences the starting price. Direct listed shares are put on display for a 10-minute period on the first day of trading, to which interested buyers enter their bids, while sellers (the existing shareholders of the company) enter their offers. After which, Nasdaq uses both information in calculating the “current reference price.”
In the case of Coinbase, Goldman Sachs as the company’s financial consultant decides with the concurrence of Coinbase, whether trading for the listing will go ahead with the current reference price. If it’s a go, applicable orders will be entered and executed at the said price once trading commences.