Coinbase shareholders sold a total of $ 5 billion in shares. A logical step for the DPO.
Hardly any IPO has been so longed for by the crypto space as that of Coinbase. Even in advance, the Californian start-up’s Direct Public Offering (DPO) triggered a real hype. Now it finally happened last week. With a starting price of US $ 350, the COIN share was listed on the American tech exchange NASDAQ, alongside big names such as Facebook, Amazon, and Apple. However, after the security was briefly valued at over $ 400, the price plummeted and is at $ 333.25 at press time.
Now the latest reports of a price dump caused astonishment. Senior shareholders at Coinbase sold a total of almost 5 billion US dollars in shares. For example, CEO Brian Armstrong sold 749,999 shares for a total of $ 291.8 million. In total, almost 13 million share certificates came onto the market. Even if this step may seem surprising at first, it is logical for Coinbase.
In order to understand why so many people in charge at Coinbase sold their shares, one must first understand the key differences between the DPO carried out by the crypto exchange and the otherwise usual Initial Public Offering (IPO). An IPO is a classic way of going public, which means: A company creates new shares that investors can buy. The company then benefits from the new capital it has received through the sale.
In this respect, a DPO is very different from an IPO. No new shares are created here, but existing ones are brought onto the market. This happens through investors who already own shares in the respective company. Most of these are shareholders within the company. However, the primary goal of the DPO is not to generate new capital for the company.
Now, some are likely to wonder why Coinbase chose the DPO for its IPO if it doesn’t get any new capital as a result. A major reason for this is what is known as the “dilution effect”. This arises when listed companies issue new shares. With the influx of new securities, the existing shares represent a smaller proportion of the respective company. Because Coinbase has not created any new shares, in this case, the existing shares are not “diluted” either. In addition, a DPO is a lot cheaper because, for example, you need fewer underwriters.
So for the Coinbase shareholders to sell their shares is a normal process to get new liquidity.
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