Crypto IPO: The race to go public

by Maxim Bederov

The vast majority of well-known public-facing cryptoasset companies — from Binance to BitGo — remain privately held. But rumours are bubbling up that a slew of these billion-dollar giants could go public in the next 12 to 18 months. 

From a macro perspective, it would seem to be a good time. Bitcoin is flying again, holding its value north of $11,500. Institutional interest is through the roof. And the crypto-as-safe-haven theme is working overtime as major economies fall into recession.  The UK is just the latest G7 state to report a double-digit drop in GDP. For the Brits, this precipitous 20.4% plunge is almost ten times larger than the fall in Q1 2020 and the worst financial quarter since records began in 1955. 

Famed hedge-fund manager Paul Tudor Jones is only the most recent financial leader to announce he is buying Bitcoin as a hedge against central bank money-printing, adding that he has almost 2% of his net worth in cryptoassets. Bitcoin is visible, valuable and vaunted once again. This now gives the sector’s most recognisable names a huge potential platform to broaden investor access and cement their names in history. 

How crypto IPOs began

Mike Novagratz’s Galaxy Digital was perhaps the first major crypto IPO. In August 2018 the digital merchant bank filed to go public on Canada’s junior stock market, the TSX Venture Exchange. Two years later, the company told the market that Galaxy would be graduating to the main market, the Toronto Stock Exchange. 

Novogratz, himself a major investor in up and coming crypto projects, opened the door to promising startups to themselves go public and seek expansionary funding. Bitmain was planning to IPO as early as June 2018, founder Jihan Wu disclosed to Bloomberg.

At the time the cryptominer was the world’s biggest crypto company. But its plans were scuppered by the so-called 2018 ‘crypto winter’, where BTC prices crashed across the year from over $12,000 as low as $2,500 and investors feared the bubble had burst. However.  Crypto, once again — perhaps channeling Mark Twain — saw reports of its death greatly exaggerated. Chinese cryptominer Canaan filed for a $400m NASDAQ IPO in October 2019. It was not a particularly resounding success, to say the least. Beginning at a price of $8.99, today Canaan trades 77% lower at $2 a share.

But institutional interest continues to rise to date. 

Henri Aslanian, the PriceWaterHouseCooper (PwC) Hong Kong lead on cryptoassets, told Bloomberg this week: “We are continuing to see increased interest from institutional investors. [They] are now able to get access to digital assets via multiple players that are regulated, of institutional grade and that would pass any operational due diligence test. This was not the case 18 months ago.” 

Now with Bitcoin and crypto prices much more buoyant, what was once a cautious trickle is about to become a flood. Hong Kong financial services startup Diginex, which in June 2020 launched a cryptoexchange in Singapore, plans a mainstream NASDAQ listing in September 2020. 

ICO to IPO

The real public relations disaster of ICOs was that thousands of token projects raised billions of dollars without ever having a product to sell. In the wider world, ICOs became just another stick to beat the crypto sector with. It was common knowledge that most investors lost all their capital on opaque, inadequately-run projects which never really had a hope of working. 

And the SEC had a field day with the most high-profile of these, slapping down Telegram’s $1.7bn token sale and forcing shut its hugely-anticipated TON blockchain scheme. Kik’s KIN token sale is still working its way through the courts

By contrast, IPOs are the final stage of a fundraising journey that puts massive revenue generators on show to the world. IPOs open up the innards of a company and put them on public display.  

Why IPO?

PwC puts it like this. “Going public is a monumental decision for any company. It forever changes how a company goes about doing business. While a public company faces greater public scrutiny and regulations, it also secures access to more and often deeper sources of capital.” 

Startups begin with seed funding at the pre-revenue stage, before moving on to ever larger funding rounds, called Series A, Series B, Series C and so on. Series C is usually the last step  a company goes through when it is ready to expand internationally, to increase its valuation before an IPO, or as currency for a major acquisition.  

“Once a company has built a product that’s become a darling in the market, that’s when the private equity and the investment bankers show up,” says Startups.co founder Will Schroter. 

These big money managers avoid all the early risk borne by angel investors and then “put massive sums of money into companies that are already winning to allow them to secure a leadership position,“ Schroter notes. 

Who else could IPO?

Coinbase comes to mind. Reuters reported on 9 July 2020 that the San Francisco exchange was readying itself for an IPO, and this move could prompt a deluge of other high-profile exchanges hitting public markets. But it’s clear that there are companies out there aiming to empire-build which would perhaps be more suited to IPO. 

Founded in 2013, custodian BitGo has had some of the cryptoasset world’s highest profile players as customers. These include CME Group, Pantera Capital, Kraken and global depository service HaruBank. It claims to process 15% of all Bitcoin transactions globally, some $15bn a month. 

As Voyager CEO Steve Erlich noted in a recent podcast: “You go public and it’s right there in front of everybody, what your stock’s worth, the financials of the company, the metrics of your company. It’s there and it’s a currency now to go make acquisitions.”

BitGo’s own potential pre-IPO fundraising — $69.5m in total — has been for precisely this: to expand its institutional offerings to become a full-service crypto company. April 2020 saw it buy institutional crypto tax manager Lumina, BitGo’s third major takeover of the last two years after staking service Hedge and security token product Harbour.

Crypto lender BlockFi has started the hunt for a permanent Chief Financial Officer ahead of a H2 2021 IPO, chief exec Zac Prince told TheBlockCrypto. Their story is remarkably similar to many other crypto startups now attracting public attention. 

A 2018 seed funding round of $3.9m led by Consenys, $52.5m of venture capital to expand a year later from Mike Novogratz’s Galaxy Digital, then an $18.9m Series A followed by a $30m Series B round in February 2020. It now claims to be on track to generate $50m in revenue in 2020. But claiming and proving are two different matters. Happily, these are the kinds of documents that will be open to investors to view in SEC filings and post-IPO. 

The CFO job posting calls for an experienced financial professional who will be in charge of investor relations. Certainly the kind of mass liquidity and financing that a public listing would bring is necessary if BlockFi is going to fulfil its ambition to dominate the space.  The addition of 8.6% yield interest-bearing Bitcoin accounts on BlockFi — a key tenet of the exploding DeFi trend — is helpful to say the least. 

Liquidity is booming here. In the last 12 months the amount of staked collateral in DeFi is up by 960%. In the last 30 days to 11 August, that number has almost doubled from $2.4bn to $4.7bn. For BlockFi this could be just the flashy headline revenue generator it needs to attract IPO investor buzz and push it across the line. 

In all, the rush towards a new wave of crypto IPOs is an intensely bullish signal for cryptoasset investors. The sector once dedicated to existing outside the system has taken another step closer to full integration. 

Author: Lauren Towner

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