Historical experience shows that it might take until after noon ET for market makers to work out the price of the initial trade in a direct stock listing.
While the cryptocurrency exchange Coinbase’s new shares technically could start trading with the overall U.S. equities market at 9:30 a.m. ET, don’t hold your breath: A very conservative starting point for the Coinbase listing practically guarantees it will take more time than usual for the fireworks to begin.
It might not be until after noon.
Coinbase, which has no official headquarters, opted to avoid an initial public offering and instead directly list its shares on the Nasdaq stock exchange, without relying on Wall Street investment banks serving as underwriters to set the pricing.
“The reason we’re doing a direct listing is that it’s going to get all market participants,” Coinbase CFO Alesia Haas told CoinDesk in an interview. “We’re not allocating shares to just 10 institutions. This is going to be a robust, deep price discovery. And we’re excited to see where that market ends up.”
Such offerings are unusual, and in the past market makers have needed hours to determine the appropriate opening price. When Slack, the business communication software, went public via a direct listing in June 2019, it took about two and a half hours to start trading. “The stock opened just after noon,” according to a Wall Street Journal story at the time.
The Coinbase listing – under the stock ticker COIN – is shaping up as a watershed moment for the cryptocurrency industry, with the biggest U.S. exchange now getting exposure to mainstream stock-market investors. The event has also been tabbed as a catalyst that might drive adoption of digital assets.
Prices for bitcoin, the biggest cryptocurrency by market value, soared Wednesday to a new all-time high above $64,000, up some 121% year-to-date. Ether, the native cryptocurrency of the Ethereum blockchain and the second-biggest overall, also rose to a record price of around $2,400.
“COIN listing is the validation of an investment thesis that crypto is not a niche market anymore,” Campbell Harvey, a professor of international business at Duke University, told CoinDesk. “It is a new mainstream market.”
Even Coinbase’s competitors are getting in on the action: Binance, the world’s largest cryptocurrency exchange, announced Wednesday it will list a digital token backed by Coinbase shares.
Another venue, FTX, which recently signed a $135 million deal to take over the naming rights of the American Airlines Arena, the home court of professional basketball’s Miami Heat, has listed a “pre-IPO contract” to track Coinbase shares. It’s currently signaling a share price of $626.
That price level, assuming 199.2 million shares outstanding, would imply a market capitalization for Coinbase of about $125 billion – roughly the same amount as BlackRock, the world’s largest money manager, and the brokerage firm Charles Schwab.
Using the fully diluted share count of 261.3 million, the implied market capitalization would be about $164 billion.
Late Tuesday, the reference point for Coinbase’s hotly-anticipated direct listing was set at $250 a share. The reference point is the low end of the expected opening trading range in a direct listing such as Coinbase’s.
Given how that’s almost $100 below the $343.58 the shares had been trading at in the private secondary market, it’s almost certain that the opening price for the Coinbase shares will be far above $250 after buyers and sellers eventually assign a value to the shares of the leading cryptocurrency exchange. Around 10:30 a.m. EST, Reuters reported Coinbase was indicated to start trading at $342, just below the private secondary market price.
As Digital Currency Group CEO Barry Silbert succinctly put it in a tweet: “I will not be selling any of my Coinbase stock to you at $250. Try again.” DCG , the world’s largest digital asset manager, is the parent of CoinDesk.
Haas, the Coinbase CFO, said Nasdaq set the reference price and that the company wasn’t involved.
“I learned about the reference price 10 minutes before the market learned about the reference price,” said Haas. “The company is sort of, frankly, a little bit ignoring it. Because it’s not an indication of anything other than what is needed to open a system.”
Lisa Ellis, an analyst for the brokerage firm MoffettNathanson, published a report Tuesday recommending COIN shares a “buy” with a one-year price target of $600 a share.
“Coinbase has enormous scarcity value, as a one-of-a-kind, pure expression of the secular cryptocurrency trend,” Ellis wrote. “We are bullish on cryptocurrency technology. While still nascent, we believe it is one of the most disruptive technology innovations in decades.”
Given COIN’s conservative reference price, it may take even longer for buyers and sellers to agree on an opening price.
This could mean traders might not see robust trading in COIN until noon ET even though U.S. stock markets open at 9:30 a.m.