Coinbase: IPO or ICO?
It goes without saying that 2017 was a big year for Coinbase, but 2018 could be even bigger if the company has an IPO in its cards.
For those of you unfamiliar with the digital currency space, Coinbase is the world's leading digital currency exchange.
By marrying a high-tech and secure software wallet for digital currency storage with a world-class trading platform, Coinbase has managed to offer investors a secure environment unlike anything on the market. Beyond that, Coinbase is also one of the only digital currency exchanges that allows investors to connect credit cards or bank accounts, making it an obvious choice for investors trying to avoid the technical bells and whistles.
Today, Coinbase has over 13 million users, placing it ahead of long-term stock brokerages like Charles Schwab.
That growth considered, it shouldn't be surprising that Coinbase blew past its projected 2017 net profit of $600 million, netting over $1 billion.
Venture capitalists are circling the company like sharks, hoping to get in on the next funding round. But Coinbase may be preparing to play a different card. Many experts believe Coinbase is gearing up for an IPO, a suggestion the company has not refuted.
If Coinbase, the reigning god of the digital currency universe, hits the market, it will be an IPO unlike anything investors have seen, combining two markets that have been separate up to this point.
That said, there is also the risk that Coinbase may take another route, one frequented by blockchain technologies over the course of 2017: an initial coin offering (ICO).
So what will it be?
First Off, What's an ICO?
Before we can dig into why a digital currency exchange would choose to launch a token through an ICO rather than go public on the market, it's important to understand what an initial coin offering, or ICO, is.
For starters, there are two kinds of digital tokens associated with an ICO: a security token and a utility token.
A utility token is a token that plays a critical role in the company's blockchain network.
Security tokens, on the other hand, are tokens that simply act as stock. They provide no value to the blockchain network. The vast majority of digital tokens on the market are security tokens.
There are numerous benefits to launching an ICO. It's fast. It's unregulated. And, at least in the early days, everyone can invest.
That's why in 2017, companies managed to raise a shocking $5.6 billion in venture capital through initial coin offerings.
Today the world of initial coin offerings looks a bit different. At the start of 2018, companies received a rude awakening from the Securities and Exchange Commission (SEC), which cautioned higher regulation and enforcement of ICOs.
This has forced ICOs to evolve, becoming more similar to traditional venture capital methods. They've gone mainstream.
ICOs Are Going Mainstream
More and more large companies have started to take steps into the blockchain and initial coin offering space.
Some of these companies make a mockery of blockchain and its valuable use cases. Such companies, in my opinion, include the parent company behind Hooters, which implemented a blockchain-based digital currency rewards program. The world doesn't really need to be rewarded with crypto for eating burgers.
Other companies have come forward with legitimate blockchain projects, like Kodak.
Kodak's KodakOne platform uses blockchain to protect artists' work and create a collaborative sharing environment. Beyond that, artists can get paid via the Kodak digital currency for their work, eliminating transaction fees.
That said, Kodak's ICO was only open to accredited investors. A big company has a lot more distance to fall when it gets on the wrong side of the SEC.
And that means if Coinbase decides to launch an ICO, it will more than likely have to be an accredited one.
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In the End, Coinbase Will IPO
Over the last year, Coinbase has made some power moves that make it look like it’s gearing up for a public market debut, not an initial coin offering.
For starters, the company is searching for a CFO, which is traditionally viewed as a step toward moving a company onto the public market.
Coinbase just launched its own index fund, solidifying its hold and future as a financial company.
Beyond those indicators, Coinbase COO Asiff Hirji has stated that Coinbase is heading toward an IPO, not an ICO. In an interview with CNBC, Hirji hinted:
We would be quite expensive for any exchange to look at. That being said, it is certainly in the interest of our investors... and the most obvious path of Coinbase is to go public at some point, but there’s a lot for us to do between now and then, whenever that date is.
At the end of the day, Coinbase is a digital currency company that tends to like to keep its nose clean.
It interacts with a wide range of investors, including many institutional investors more closely tied to traditional markets. ICOs are still vastly unregulated and can come with both negative and positive press.
It would be much safer for Coinbase to color inside the lines and launch an IPO.
Looking Toward the Future
Whether it happens this year or in 2019, it does appear that Coinbase is gearing up to take on the public market. And when it does, it will more than likely be a smashing hit.
After all, Coinbase is the king of the digital currency jungle. When it hits the public market, it will give investors scared of crypto's crazy volatility a chance to interact with the digital currency market through a public company.
In the coming year, we expect to see more interactions between the mainstream markets and the world of digital currency. This interaction will come in the form of digital currency ETFs, more digital currency futures, and digital currency IPOs.
For now, if you're interested in learning more about digital currencies, keep an eye on Wealth Daily. We will be launching a new FREE e-letter dedicated to digital currency soon, and you'll find out about it in your inbox!
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@AlexandraPerryC on Twitter
Alexandra Perry is a contributing analyst for Wealth Daily and Energy and Capital. She has multiple years of experience working with startup companies, primarily focusing on artificial intelligence, cybersecurity, alternative energy, and biotech. Her take on investing is simple: a new age of investor can make monumental returns by investing in emerging industries and foundational startup ventures.
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