United States securities and exchange commission logo
December 7, 2020
Brian Armstrong
Chief Executive Officer
Coinbase Global, Inc.
c/o The Corporation Trust Company
1209 Orange Street
Wilmington, DE 19801
Re: Coinbase Global,
Inc.
Draft Registration
Statement on Form S-1
Submitted October
9, 2020
CIK No. 0001679788
Dear Mr. Armstrong:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement on Form S-1 submitted October 9, 2020
General
1. Please clarify for us
whether the Class T common stock will be issued and outstanding
prior to the effective
date of the registration statement. In addition, assuming the Class T
common stock is
outstanding prior to effectiveness, please tell us how you intend to
identify the price at
which Class T common stock holders will offer their shares for resale
following the
effectiveness of the registration statement and prior to the emergence of any
public market for such
securities. Please refer to Item 501(b)(3) of Regulation S-K.
2. Please provide us with
your legal analysis why the issuance of Class T shares in token
Brian Armstrong
FirstName LastNameBrian Armstrong
Coinbase Global, Inc.
Comapany7,
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2020 Global, Inc.
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form does not represent the issuance of a security different from the
uncertificated
security. In your analysis, please provide a detailed explanation of
why a single class of
securities may be held in different forms with different rights under
applicable state law.
3. Please provide us with your legal analysis as to why the offering of
Class T common stock
should not be treated as an indirect primary offering. Please refer to
Securities Act Rules
Compliance and Disclosure Interpretations 612.09, which is available
on our website.
4. Please refer to the carryover risk factor paragraph on pages 26-27.
Please provide us with
your legal analysis as to why you believe you can conclude that the
crypto assets traded
on your core platform are not securities and, therefore, you are not
facilitating, or causing
you to engage in, transactions in unregistered securities. In your
response, please
specifically address how you determine with a reasonable degree of
certainty that crypto
assets are not securities for purposes of the federal securities laws.
In preparing your
response, you may find useful the letter sent by the SEC s Strategic
Hub for Innovation
and Financial Technology to The New York State Department of Financial
Services on
January 27, 2020, which letter is available on our website at
https://www.sec.gov/files/staff-comments-to%20nysdfs-1-27-20.pdf.
5. Please provide us with your legal analysis as to why your activities
supporting staking are
executed in compliance with the federal securities laws.
6. You state in the first full bullet point on page 67 that you intend to
host an investor day
and engage in certain other investor education meetings. Please
clarify the intended scope
and timing of these investor education meetings, including whether
they are follow-up
meetings to answer questions about information provided at the
investor day, or
something more. In addition, please clarify whether the Company will
cease all marketing
and investor education activities and observe a restricted period in
connection with the
pricing of the direct listing.
7. Please provide mockups of any pages that include any additional
pictures or graphics to be
presented, including any accompanying captions. For guidance, refer to
Securities Act
Forms Compliance and Disclosure Interpretation 101.02.
8. While we understand you do not have a principal executive office,
please add to the cover
page of the registration statement your primary business telephone
number, if you have
one.
Cover page
9. Please refer to the fifth paragraph. Please revise the discussion of
the timing of Goldman
Sachs s obligations by clarifying whether Goldman Sachs (as
financial advisor) is
obligated to notify Nasdaq that the shares are ready to trade
before, during, or after
Nasdaq is to calculate the Current Reference Price (Opening Price).
The disclosure as
currently drafted appears to indicate that Goldman Sachs must make a
subsequent or
separate determination to approve proceeding at the Current
Reference Price. Please
Brian Armstrong
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Coinbase Global, Inc.
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2020 Global, Inc.
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similarly revise the corresponding disclosure in Plan of Distribution.
10. You state that both Goldman Sachs and J.P. Morgan in their roles as
financial advisors
will consult with Nasdaq. Please tell us how this is consistent with
the Nasdaq direct
listing rule permitting only one financial advisor to be designated
for purposes of
consulting with the exchange and performing the ready to trade
duties and other
functions. Alternatively, please revise here and in the first
paragraph on page 177 to
clarify the financial advisors respective roles in the direct
listing.
About This Prospectus, page ii
11. Please explain the basis for indicating that changes to the plan of
distribution may be
made in a prospectus supplement. In this regard, we note your
obligation pursuant to the
undertakings in Part II of the registration statement to file during
any period in which
offers or sales are being made a post-effective amendment to include
any material
information with respect to the plan of distribution not previously
disclosed in the
registration statement or any material change to such information.
Prospectus Summary
Our Token Class T Common Stock, page 6
12. Please clarify here and throughout the prospectus whether the benefits
you intend to
provide to holders of the Class T common stock will depend on whether
the stock is
held in certificated form represented by a security token. In
addition, please tell us
whether such benefits would constitute terms and conditions of the
security, and please
tell us the basis for your position.
Implications of Being an Emerging Growth Company, page 9
13. Please provide us copies of all written communications, as defined in
Rule 405 under the
Securities Act, that you, or anyone authorized to do so on your
behalf, present to potential
investors in reliance on Section 5(d) of the Securities Act, whether
or not they retain
copies of the communications. Please contact J. Nolan McWilliams at
the number below
to discuss how to submit the materials, if any, for our review.
Risk Factors
Our operating results have and will significantly fluctuate, page 14
14. Please place this risk factor in context by quantifying the volatility
in crypto assets in
recent periods.
A particular crypto asset s status as a security in any relevant
jurisdiction is subject to a high
degree of uncertainty, page 26
15. We note your disclosure that "[t]he test for determining whether any
given crypto a is a
security is a highly complex, fact-driven analysis that evolves over
time, and the outcome
Brian Armstrong
FirstName LastNameBrian Armstrong
Coinbase Global, Inc.
Comapany7,
December NameCoinbase
2020 Global, Inc.
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is difficult to predict." Please emphasize that this test is a legal
test and is different than
your scoring model, which is not a legal standard and only a
risk-based assessment that
does not preclude legal or regulatory action based on the presence of
a security.
16. We note your disclosure that "[p]ublic statements by senior officials
at the SEC indicate
that the SEC does not intend to take the position that Bitcoin or
Ether are securities (in
their current form)." Please revise this risk factor to clarify that
Bitcoin and Ether are the
only digital assets as to which senior officials at the SEC have
publicly expressed such a
view, and further clarify that as to all other digital assets there is
currently no certainty
under the applicable legal test that such assets are not securities,
notwithstanding the
predictions of your scoring model.
We may suffer losses due to abrupt and erratic market movements, page 39
17. We note from media accounts that trading has been disabled or
temporarily halted in the
past year. Please place this risk factor in context by quantifying the
number, frequency,
and average duration of outages in the last year and any material
expenses or other
damages as a result.
Risks Related to Crypto Assets
A temporary or permanent blockchain "fork" to any supported crypto asset, page
41
18. Please tell us and disclose your policy for accounting for forks and
airdrops. Your
disclosure should address your policy related to digital assets owned
by you as well as
those held by you through custodial accounts.
Risks Related to our Class T Common Stock, page 60
19. Please expand your risk factor disclosure relating to holding and
trading Class T common
stock in token form. In doing so, please address the particular risks
arising from
the different or limited rights that holders of Class T common stock
in token form
will have compared to holders of certificated securities.
The registration and listing of our Class A common stock, page 66
20. Please remove the implication of an intention to engage in price
manipulation by deleting
the following language from the fifth sentence of the first bullet
point: to help stabilize,
maintain, or affect the public price and on the Nasdaq Global
Select Market
immediately after the listing.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page
89
21. We note crypto assets held totaled $38.5 million and $33.9 million as
of June 30, 2020
and December 31, 2019, respectively. Please provide us a rollforward
of your crypto
assets held for each period presented which includes or reconciles to
crypto asset amounts
disclosed in your Consolidated Statement of Cash Flows.
Brian Armstrong
Coinbase Global, Inc.
December 7, 2020
Page 5
Overview, page 89
22. Please describe any known trends or uncertainties that have had, or
that you reasonably
expect will have, a material favorable or unfavorable impact on
revenue or results of
operations. For example, you state that you expect volatility in
trading volume to
decrease as institutional trading increases and as you expand the
number of supported
crypto assets. Please discuss the extent to which decreased volatility
and shifting the mix
of users and crypto assets are expected to materially impact revenues
and profitability.
Refer to Item 303(a) of Regulation S-K and Section III.B.3 of Release
No. 33-8350.
Our Business Model, page 90
23. Please expand your discussion of crypto asset price cycles, including
qualitative and
quantitative information, so that investors can better understand the
duration and volatility
of price cycles and the extent to which volatility in the
cryptoeconomy is related to
broader economic cycles.
24. Please refer to the third paragraph of this section. Please discuss
specifically how you
manage Coinbase to break-even over price volatility cycles.
Key Business Metrics, page 91
25. We note disclosure on page 16 that transaction fees generated with the
purchase, sale, and
trading of Bitcoin and Ether drove over 65% of total trading volume on
your platform
during the six-months ended June 30, 2020. Please revise to quantify
material crypto
asset concentrations in trading volumes, transactions fees, and other
key performance
metrics for each period provided.
26. You state that Verified Users, Monthly Active Users, and Assets on
Platform are an
indication of scale, engagement with your platform, and monetization
opportunities.
Please discuss the relationship of each of these metrics to net
revenues and revenues from
products and services.
Assets on Platform, page 93
27. Please refer to the chart on page 93. Please break out the components
of Assets on
Platform by quantity, price, and types of assets and discuss the
reasons for period over
period fluctuations by component.
Trading Volume, page 93
28. Please refer to the chart on page 94. Please explain the reasons for
period over period
FirstName LastNameBrian Armstrong
fluctuations in Retail Users Trading Volume, Institutions Trading
Volume, and 3 Month
Comapany NameCoinbase
Volatility. Global,
Also please Inc.the extent to which fluctuations in 3
Month Volatility
discuss
correlate
December or Page
7, 2020 are predictive
5 of retail and institutional trading volume.
FirstName LastName
Brian Armstrong
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Coinbase Global, Inc.
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2020 Global, Inc.
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Key Factors Affecting Our Performance
Investments in growth, page 95
29. Please quantity the estimated investments in development of products
and service, sales
and marketing, and internationally and discuss key milestones and time
frames to
implement each of these strategies. To the extent this is not known
for a particular growth
strategy, please briefly describe the factors you will consider in
determining the amount
and timing of investments.
Strategic acquisitions, investments, and partnerships, page 96
30. We note disclosure that you plan to enter into a variety of strategic
partnerships with
various companies that contribute to your ability to scale your
business, including but not
limited to, partnerships that allow you to increase traffic to your
platform, bridge
traditional finance with cryptocurrency, and expand your current
product offerings. We
also note disclosure of partnerships with Centre Consortium on page
29, PayPal on page
119, and a multinational corporation related to your Spend product on
pages 120 and 122.
Please revise your filing to discuss the benefits of these
partnerships including how they
will impact future financial results.
Components of Results of Operations
Other revenue, page 97
31. We note disclosure that periodically, as an accommodation to
customers, you may fulfill
customer transactions using your own crypto assets. To the extent the
accommodations
become material, please revise to more fully explain the economic and
other reason(s)
why you provide this accommodation, why these transactions wouldn t
be fulfilled by
customers on your trading platform, and to provide any other
information needed to allow
an investor to understand the potential benefits and costs and the
impact on your financial
results or business from these transactions.
Transaction expense, page 97
32. We note disclosure that included within transaction expenses are
crypto asset losses due to
transaction reversals and that these losses increased by $6.2 million
during the six months
ended June 30, 2020 due to a 55% increase in trading volume. Please
revise to more
clearly describe why and how you incur costs and losses related to
transaction reversals
and tell us if fee reversals are included in this amount noting your
disclosure on page 106
regarding the estimate of fee reversals included in revenue. Please
disclose total
transaction reversal losses recognized for each period presented along
with a discussion of
the underlying reason for material trends and discuss any policies and
procedures used to
manage this risk.
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Coinbase Global, Inc.
Comapany7,
December NameCoinbase
2020 Global, Inc.
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Critical Accounting Policies and Estimates
Revenue recognition, page 105
33. We note disclosure that in certain instances, transaction fees can be
collected in crypto
assets with revenues measured based on the amount of crypto assets
received and the fair
value of the crypto assets at the time of the transaction. Please
revise to discuss:
the prevalence of collecting transaction fees in crypto assets
and quantify if material,
if you typically hold these crypto assets or convert them into
fiat currency after
receipt, and
how you manage the fair value risk associated with crypto
assets received.
Business
Welcome to the Cryptoeconomy, page 112
34. Please discuss here crypto asset forks and airdrops and describe the
criteria you use in
determining whether to support forked or airdropped crypto assets.
Also please provide
us the basis for your belief that you are not required to support any
fork or provide any
benefit of any forked crypto asset to your customers. We note the
second to last
paragraph of the full risk factor on page 41.
What Sets Us Apart
We have a trusted platform, page 117
35. Please briefly provide the basis of your belief that you have a
trusted platform and
substantiate that you have the industry s largest insurance policy.
Growth Strategy, page 118
36. Please revise, where appropriate, to disclose the more than 30 crypto
assets you allow
customers to invest in and the more the 50 crypto assets you store on
your platform as
disclosed on page 120.
Our Products
Retail, page 122
37. We note disclosure on page 123 that for your Save product customers
earn rewards in the
form of USDC and Dai, which are stablecoins that you earn commissions
on when
customers earn rewards. Please revise to disclose who issues these
stablecoins as rewards
and how these rewards are reflected in your financial statements.
Additionally, as we note
holdings of USDC on your balance sheet on page F-4, please tell us the
amount of Dai
held at each period end presented.
Committees of the Board of Directors, page 136
38. Please discuss the extent of the board s and the audit and
compliance committee s role in
Brian Armstrong
FirstName LastNameBrian Armstrong
Coinbase Global, Inc.
Comapany7,
December NameCoinbase
2020 Global, Inc.
December
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overseeing cybersecurity risk management. Please refer to Item 407(h)
of Regulation S-K
and the Commission Statement and Guidance on Public Company
Cybersecurity
Disclosures (Feb. 26, 2018).
Certain Relationships and Related Party Transactions
Investors Rights Agreement, page 151
39. Please identify by name the holders of your convertible preferred
stock who are parties to
the investors rights agreement.
Principal and Registered Stockholders, page 154
40. Please clearly identify the selling security holders. In particular,
please disclose the
amount of securities to be offered for each security holder's account
as well as the amount
and (if one percent or more) the percentage of the class to be owned
by such security
holder after completion of the offering. In addition, please disclose
the name of each of
the selling security holders you have aggregated in the categories
labeled "Non-Executive
Officer and Non-Director Service Providers" and "All Other Registered
Stockholders" and
provide for each of them the information required by Item 507 of
Regulation S-K, or tell
us why you believe such disclosure is not required.
Class A Common Stock, Class B Common Stock, and Class T Common Stock
Conversion, page 159
41. Please refer to the second paragraph on page 160. Please disclose the
circumstances under
which you believe the committee of disinterested directors would
choose to convert Class
T common stock into Class A common stock. In addition, please disclose
how they would
establish the conversion price and notify holders in the event they
elected to effect a
conversion. In your response, please address whether the process and
procedures for a
conversion would be different if the Class T common stock were quoted
on an alternative
trading system.
Form, page 160
42. You state that holders may elect to hold shares of Class T common
stock in certificated
form represented by a security token. Please expand this section to
disclose in detail the
differences between holding such securities in certificated form and
token form. In this
regard, we note your risk factor disclosure beginning on page 60,
which describes a
variety of differences, some of which implicate fundamental rights of
security ownership,
such as voting and receiving dividends. In addition, please disclose
the process for
exchanging securities in certificated form for securities in token
form, as well as how
tokens will be issued, who will hold the public and private keys for
the tokens, who will
establish the blockchain and how the tokens will be transferred and
recorded on the
blockchain. Further, please explain in detail how you will determine
who is eligible to
vote shares represented by tokens, who is eligible to receive
dividends or other payments
Brian Armstrong
Coinbase Global, Inc.
December 7, 2020
Page 9
on such shares and what direct rights token holders will have and how
they will be able to
exercise those rights.
Our Token Class T Common Stock, page 166
43. To the extent known, please clarify whether you intend to register the
Class T common
stock or any other class of digital securities you may issue in the
future under Section 12
of the Exchange Act.
44. Please refer to the second paragraph. Please clarify whether you
intend to provide
benefits to holders who are directors, officers, or related parties.
45. Please tell us how you would likely structure any future issuance of
shares of Class T
common stock to your customers in connection with customer reward or
loyalty programs
to comply with the federal securities laws, including, but not limited
to, the registration
requirements of the Securities Act.
Plan of Distribution, page 176
46. Please disclose that the holders of Class T common stock who are
offering their securities
for resale pursuant to this registration statement may be deemed to be
statutory
underwriters.
47. Please clarify whether you intend for the term registered
stockholders to include their
pledgees, donees, transferees, or others in terms of the registrant
s existing stockholders
who may or may not sell their shares immediately at the open of
trading on Nasdaq.
48. Please refer to the second full paragraph on page 178. Please disclose
whether Goldman
Sachs, J.P. Morgan, or any other financial advisors will also serve in
the capacity of an
active market maker in connection with this direct listing and,
if so, briefly describe the
scope and timing of their activities in contrast to those of a
financial advisor.
Index to Consolidated Financial Statements, page F-1
49. Please revise to include audited statements for the fiscal year ended
December 31, 2018 or
confirm that you intend to include two years of audited financial
statements and related
MD&A disclosure in an amendment prior to distributing a preliminary
prospectus to
investors. Refer to General Instruction II.C of Form S-1 for guidance.
Report of Independent Registered Public Accounting Firm, page F-2
50. Please revise to include a report of the independent registered public
accounting firm
FirstName LastNameBrian Armstrong
indicating that their audit was conducted in accordance with the
standards of the PCAOB,
Comapany NameCoinbase
rather Global, Inc.
than only the auditing standards. Refer to the guidance in
paragraph .09 of AS3101.
December 7, 2020 Page 9
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Brian Armstrong
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Coinbase Global, Inc.
Comapany7,
December NameCoinbase
2020 Global, Inc.
December
Page 10 7, 2020 Page 10
FirstName LastName
Note 2. Summary of Significant Accounting Policies
Customer custodial funds and custodial funds due to customers, page F-12
51. We note that you have customer custodial funds in segregated accounts.
These funds
represent cash deposits held by customers in their fiat wallets and
unsettled transaction
payables. Please tell us and revise to discuss if you segregate
customer custodial funds as
a result of a regulatory requirement or for another reason.
Additionally, please revise to
disclose your accounting policy for your customer custodial funds and
tell us the
accounting guidance supporting recognition of these amounts on your
balance sheet.
Note 4. Acquisitions
Neutrino, page F-19
52. Please tell us the accounting guidance that supports your accounting
of the $7.4 million
held in an escrow fund for former stockholders of Neutrino S.r.l at
the acquisition date and
subsequent to the acquisition date when you released the funds and
recognized the amount
as a technology and development expense in your consolidated statement
of operations.
Specifically, tell us how you considered the guidance starting in ASC
805-10-25-13 as to
whether the separation agreement entered into soon after the
acquisition should be
reflected as a measurement period adjustment to the initial accounting
for the acquisition
of Neutrino.
Xapo, page F-20
53. Please tell us the accounting guidance that supports measuring the
contingent
consideration at fair value with subsequent changes in fair value
being recognized in net
income or loss for your acquisition of the customer relationships and
institutional custody
business of Xapo, Inc. Specifically tell us how you considered whether
the transaction
should be accounted for as an acquisition of assets rather than a
business with contingent
consideration not meeting the definition of a derivative typically
accounted for in
accordance with ASC 450.
Note 5. Revenue
Staking revenue, page F-22
54. We note your disclosure here that the Company participates in networks
with proof-of-
stake consensus algorithms, through creating or validating blocks on
the network. In
exchange for participating in the consensus mechanism of these
networks, the Company
earns rewards in the form of the native token of the network. We
further note your
disclosure on page 35, that as a service to customers, you operate
staking nodes on certain
blockchain networks utilizing customers crypto assets and pass
through the rewards
received to those customers, less a service fee.
Please provide us with the following additional information concerning
your staking
services:
Brian Armstrong
Coinbase Global, Inc.
December 7, 2020
Page 11
Provide us with a more detailed description of the nature of your
staking services. In
your response please elaborate on how the staking process operates,
how you provide
services and generate revenue from that process and how your
arrangements with
customers are structured.
Confirm whether staking revenue presented on page F-21 represents
staking revenue
earned from activities performed on your own account, performed on
behalf your
customers, or both. If both, separately quantify the related staking
revenues
recognized during each period presented and tell us where these
amounts are
recognized on your statements of operations.
Describe the nature of your staking expenses and quantify them
separately for each
period presented; and
Quantify rewards received, rewards passed through to customers,
and service fees
earned during each period presented and reconcile such amounts to
the staking
revenues disclosed on page F-21.
Note 8. Goodwill and Intangible Assets, page F-25
55. Please revise to separately disclose each material crypto asset held and
its value as of each
period end presented.
You may contact John Spitz, Staff Accountant, at (202) 551-3484 or
Michael Volley,
Staff Accountant, at (202) 551-3437 if you have questions regarding comments on
the financial
statements and related matters. Please contact J. Nolan McWilliams,
Attorney-Advisor, at (202)
551-3217 or Dietrich King, Attorney-Advisor, at (202) 551-8071 with any other
questions.
Sincerely,
FirstName LastNameBrian Armstrong
Division of
Corporation Finance
Comapany NameCoinbase Global, Inc.
Office of Finance
December 7, 2020 Page 11
cc: Michael A. Brown, Esq.
FirstName LastName