The time is ripe, will 2021 usher in a crypto IPO boom?

Original title: "The Crypto IPO Boom Has Come"

From the end of 2020 to the beginning of 2021, there were frequent reports of progress in the listing of cryptocurrency trading platforms.

However, just as Bitcoin ETFs have been difficult to get approved, there are currently very few crypto trading platforms that have successfully listed.

To sum up, there are mainly several reasons:

First, existing regulatory rules are not applicable to the crypto industry, and there is no basis for regulation;

Second, due to considerations of anti-money laundering and anti-terrorist financing, regulatory agencies represented by the U.S. SEC are strict on encryption innovation (risks) and find it difficult to approve it.

Third, cryptocurrencies are highly volatile and carry many risks.

However, just as some companies have repeatedly failed in their applications for Bitcoin ETFs, listing has always been a high priority in the To Do List of crypto companies such as Coindesk, and crypto companies will not stop trying.

The Federal Reserve is printing money and flooding the market with liquidity, Bitcoin is breaking new highs, and institutions are increasing or even increasing their holdings of BTC in their investment portfolios...Against this backdrop, the cryptocurrency industry is getting closer and closer to the word "listing."

What does listing bring?

The so-called listing means that the stocks issued by the company can be traded on the stock exchange.

For cryptocurrency companies, this means that the traditional financial circle can trade the stocks of crypto companies, which means that the value of the crypto business is transferred to the stock circle.

Traditional investors can use crypto companies, crypto businesses, and even the entire crypto industry as targets for investment or speculation in the form of securities in a way that they are more accepting of or more compliant with.

Therefore, for crypto companies, going public means gaining acceptance from the traditional financial circle and having a higher level of "compliance."

There are currently four main ways to go public.

The first is the IPO (initial public offering) that we often hear about, where a company sells its shares to the public for the first time and raises funds in this way.

The second is a direct listing. In July 2020, Reuters reported that Coinbase said in its preparations for listing that it might skip an IPO and choose a direct listing.

The difference between direct listing and IPO is that direct listing does not require underwriters, which can save up to hundreds of millions of dollars in underwriting fees.

Direct listing does not issue new shares and does not raise funds from the market, so the stock value of original shareholders will not be diluted, and there is no lock-up period for transactions.

The third type is backdoor listing, which means going public by merging with a listed company that has no business, assets, or liabilities to form a new entity.

Compared with IPO, backdoor listing takes less time and has a higher success rate. For example, Huobi completed its listing through Tongcheng Holdings in 2019, and the merged company was named "Huobi Technology Holdings Co., Ltd."

The fourth type is SPAC listing.

The full name of SPAC is Special Purpose Acquisition Corp, which is a "shell company" established and listed by raising funds from mutual funds, hedge funds, etc.

The purpose of this "shell company" is to find a non-listed company with high growth prospects and merge with it to go public.

Bakkt announced in January this year that it would merge with blank check company VPC Impact Acquisition Holdings to go public, which is actually seeking to go public through SPAC.

In general, due to the regulatory uncertainty in the cryptocurrency field, the success rate of going public through IPO can be said to be very low. This may be the reason why mining machine companies such as Bitmain and Ebang International have failed in their multiple applications for listing.

Bibi News is compiled based on online information

In contrast, there may be more and more crypto companies seeking to go public through direct listing or SPAC.

Crypto companies’ efforts to go public

The crypto industry has always had expectations for going public.

In 2018, Coinbase received a $300 million Series E funding round led by Tiger Global Fund. Since then, the industry has been speculating and circulating news about Coinbase's listing.

On December 8, 2020, Coinbase announced on Twitter that it had submitted the S-1 form to the SEC and hoped that the SEC would review and approve it so that it could go public.

Source: Twitter

It is worth noting that from the end of December 2020 to the beginning of January this year, following Coinbase, several more cryptocurrency trading platforms announced their listing progress.

Bakkt announced that it will merge with VPC Impact Acquisition Holdings through SPAC and Gemini’s founders, the Winters brothers, also said that Gemini will consider going public.

On December 25, the price of Bitcoin hit a new high, soaring to more than $40,000 within the first month of 2021;

Traditional giants including MicroStrategy, Grayscale, Guggenheim, Paypal, Square, BlackRock, etc. have added BTC to their investment portfolios or even heavily invested in BTC;

Gary Gensler, who is well-versed in the field of cryptocurrency, was appointed as the new chairman of the US SEC;

…

Perhaps it is in this context that the time for crypto companies to go public is gradually maturing.

Whether publicly or confidentially, going public is becoming a widespread attempt by crypto companies. An American lawyer told Bibi News that he is currently handling several cases of cryptocurrency companies going public.

Crypto companies are also exploring how to obtain compliant listing seats. In this process, institutions or personnel with relevant business experience are obviously very important.

It is reported that Coinbase's listing will be led by Goldman Sachs.

According to Longhash information, Coinbase's board of directors and management structure underwent major adjustments before submitting the S-1 form, and four new board members were appointed in 2020.

Brain Brooks, former acting head of the U.S. Office of the Comptroller of the Currency (OCC), was also Coinbase’s chief compliance officer.

In July 2020, a few months before Coinbase filed its S-1 form, Coinbase appointed Paul Grewal, who had experience as a local judge, as chief legal officer.

Secondly, the listing method will greatly affect whether the listing will be successful.

Diginex is the first publicly traded company with a cryptocurrency exchange listed on Nasdaq. The company’s businesses include cryptocurrency trading, digital asset custody, investment management, and securitization consulting.

Diginex completed its IPO through SPAC in 2020. As mentioned above, when going public through SPAC, as long as the acquiring parties agree, the transaction can be carried out after the allotment is completed.

Bakkt, which announced in January this year that it would go public through a SPAC merger, is therefore believed to be likely to go public before Coinbase.

Bakkt has always been closely associated with compliance. In 2019, Bakkt launched the first compliant physically delivered Bitcoin futures product. Jeffrey Sprecher, founder of Intercontinental Exchange (ICE), Bakkt's parent company, and his wife have been active in politics.

Therefore, Bakkt may have a more accurate judgment in listing.

But whether it is Coinbase, Bakkt, one is valued at US$28 billion and the other is valued at more than US$2 billion, or other crypto companies, their listing process will become an industry paradigm.

There are several major difficulties faced by crypto trading platforms when listing on the U.S. stock market.

First of all, from the perspective of the SEC, as mentioned above, it is difficult to prevent the use of cryptocurrencies in money laundering, terrorist financing, etc. From a standpoint, regulatory agencies including the SEC are strict with the industry and it is difficult to let it go.

Secondly, the current legal framework is not fully applicable to the crypto industry, supervision is still unclear, and there are no rules to follow. Amid uncertainty, the SEC remains cautious and is likely to reject crypto companies’ IPOs.

Third, for listing applications, the SEC may focus on the company's financial statements, whether profits are sustainable, whether the stock price can remain stable, what risks it faces, how to protect investors, etc.

For crypto trading platforms, the volatility of cryptocurrency itself is a major destabilizing factor. The security of the platform, the cross-regional nature of users, etc. are all risk points. The SEC requires companies to disclose all risk points in detail.

Fourth, from the perspective of crypto trading platforms, if the listing is successful, the platform must report regularly. Recent US regulatory proposals also mentioned the need to report transactions and user information related to self-hosted wallets.

The industry is at a critical stage. If the listing is successful, the industry will usher in wider acceptance, but at the same time, companies including crypto trading platforms will also need to make trade-offs and reconcile between regulation and the original intentions of decentralization and anti-censorship.

Reference articles:

"6 ways and procedures for listing in the United States in 2019: the latest and most complete" by Greenfield Listing Road

"Behind the Coinbase IPO: Chinese capital enters the market, with a valuation of US$28 billion" by Shenchao

"Coinbase is preparing to go public this year. What impact will it have on the digital currency industry? | Kaozai Star Selection" by LongHash Blockchain News