Nascent cryptocurrency companies itching to make their public debuts are forgoing traditional IPOs in favor of more lightly regulated alternatives.
By Troy Hooper and Rachel Stone
Cryptocurrency companies eyeing the stock exchanges are likely to eschew traditional initial public offerings and take alternative paths instead.
Since the virtual coins are designed to replicate and replace traditional financial services using digitized ledgers known as blockchains, it is only natural the businesses that are built around them would seek alternative ways to go public and cash out their investors.
Coinbase’s market debut in April is the biggest public listing yet in the nascent space, setting the stage for other well-capitalized, profitable crypto businesses to consider direct listings, sources told Mergermarket. Other players like Apex Clearing, Bakkt, Cipher Mining and eToro are going public through mergers with special purpose acquisition companies (SPACs). In 2019, Voyager went public through a reverse merger with a shell company.
“The direct listing model has appeal to crypto companies because it’s a democratized model,” said Lisa Ellis, an analyst at MoffettNathanson. “It fits with the ethos of cryptocurrencies of democratization of finance. In a direct listing, there is no roadshow or allocations by investment banks to a privileged set of investors.” She said every retail investor has access to the same information, documents and trading on the same day “but it’s only practical if you don’t need money” since direct listings are not a means to raise additional capital.
Direct listings are better suited for businesses with brand recognition, said Ralph De Martino, a partner at the law firm Schiff Hardin. Many crypto companies were formed in the last decade and haven’t yet developed substantial brand recognition. Going public through a SPAC, he said, is a more popular IPO alternative for entrepreneurs looking to capitalize on an “exuberant market.”
One of De Martino’s clients, Good Works Acquisition, is merging with Cipher Mining, a newly formed subsidiary of Amsterdam-based blockchain firm Bitfury.
“Coming to market through a SPAC enabled us to get to the market quickly and capitalize on the growing interest in crypto,” Cipher CEO Tyler Page told Mergermarket.
Startups also stand to benefit from the connections and expertise of SPAC executives and board members, especially as many crypto executives come from outside the traditional financial services landscape. “Given that crypto is still so new and early in its technology, there is value in having the SPAC owners on board to help…