The wave of crypto listings is here! But still facing these pain points

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The industry is in a critical period. The successful listing will usher in wider acceptance in the industry. However, at the same time, companies including encrypted trading platforms also need to choose and reconcile the original intentions of supervision and decentralization and anti-censorship.

Original title: “The Encryption Listing Tide Has Come”
Written by: Breeze

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

However, just as Bitcoin ETF has been difficult to obtain approval, there are currently very few crypto trading platforms successfully listed.

In summary, there are several reasons:

1. The existing regulatory rules do not apply to the encryption industry, and there is no basis for regulation;

Second, out of consideration of anti-money laundering and anti-terrorist financing, the regulatory agencies represented by the US SEC are strict on encryption innovation (risk) and are difficult to release.

Third, cryptocurrencies are highly volatile and risky.

However, just as some companies have repeatedly failed to apply for Bitcoin ETF, 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 printed money and released water, Bitcoin broke new highs, and institutions increased or even placed BTC in their investment portfolios… In this context, the cryptocurrency industry and the word “listing” are getting closer and closer.

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, that is, the value of encrypted business is passed to the stock circle.

Traditional investors can use crypto companies, crypto businesses, and even the entire crypto industry as targets in a more acceptable or compliant manner, and invest or speculate in the form of securities.

Therefore, going public, for crypto companies, means gaining acceptance in the traditional financial circle and also having a higher degree of “compliance.”

There are currently four main ways to go public.

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

The second is direct listing. In July 2020, Reuters reported that Coinbase stated when preparing to go public that it might skip the IPO and choose to go public directly.

The difference between direct listing and IPO is that direct listing does not require an underwriter, which can save hundreds of millions of dollars in underwriting costs.

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

The third type is backdoor listing, which refers to the realization of listing 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 cost, and the success rate is higher. For example, Huobi completed its listing through Tongcheng Holdings in 2019, and the combined company is called “Huobi Technology Holdings Co., Ltd.”.

The fourth is the listing of SPAC.

The full name of SPAC is Special Purpose Acquisition Corp, or “Special Purpose Acquisition Company”, which is a listed “shell company” formed by raising funds from mutual funds and hedge funds.

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

Bakkt announced in January this year that it will merge with the blank check company VPC Impact Acquisition Holdings, which is actually seeking a listing through SPAC.

Generally speaking, because of the regulatory uncertainty in the cryptocurrency field, the success rate of listing 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 not successfully applied for listing.

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

Encrypted companies’ listing efforts

The crypto industry has always had expectations of going public.

In 2018, Coinbase received US$300 million in Series E financing led by Tiger Global Fund. Since then, the industry has been speculating and circulating news of Coinbase’s listing.

On December 8, 2020, Coinbase announced through Twitter that it had submitted the S-1 form to the SEC and hoped that the SEC would review it and allow it to conduct a public offering.

The wave of crypto listings is here! But still facing these pain pointsSource: Twitter

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

Bakkt announced that it will merge with VPC Impact Acquisition Holdings through SPAC. The Winterless brothers, the founders of Gemini, also said that Gemini will consider listing.

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

Traditional giants including Micro Strategy, Grayscale, Guggenheim, Paypal, Square, Black Rock, etc. add BTC to their investment portfolios or even hold BTC;

Gary Gensler, who has a lot of research in the field of cryptocurrency, was appointed as the new SEC chairman in the United States;

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

Either publicly or confidentially, going public is becoming a widespread attempt by crypto companies. An American lawyer told Beep News that he is dealing with several cases of listing of encrypted digital currency companies.

Encryption companies are also exploring how to obtain a compliant listing seat. In this process, organizations or personnel with relevant business experience are obviously very important.

It is reported that the listing of Coinbase will be led by Goldman Sachs.

According to Longhash’s information, before Coinbase submits the S-1 form, the board of directors and management structure have undergone substantial adjustments, and four new board members will be appointed in 2020.

BrainBrooks, the former acting head of the OCC of the U.S. Office of the Comptroller of Currency, was also the chief compliance officer of Coinbase.

In July 2020, a few months before Coinbase submitted the S-1 form, Coinbase appointed Paul Grewal, who has experience as a magistrate, as its chief legal officer.

Secondly, the way of listing will largely affect the success of listing.

Diginex is the first listed company to be listed on the Nasdaq with a cryptocurrency exchange. The company’s business includes cryptocurrency trading, digital asset custody, investment management, and securitization consulting.

Diginex will be listed through SPAC in 2020. As mentioned in the previous section, if the company is listed as a SPAC, the transaction can be carried out as long as the acquisition parties agree and the placement is completed.

Bakkt, which announced in January this year that it will be merged and listed through SPAC, is therefore considered to be likely to be listed before Coinbase.

Bakkt has always had a strong relationship with compliance. In 2019, Bakkt launched the first compliant bitcoin futures product with physical delivery. Bakkt’s parent company, Jeffrey Sprecher, founder of Intercontinental Exchange ICE, whose wife has been active in politics.

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

But whether it is Coinbase, Bakkt, one with a valuation of 28 billion U.S. dollars, another with a valuation of more than 2 billion U.S. dollars, or other crypto companies, their listing process will become the industry paradigm.

Encrypted trading platforms are mainly faced with such difficulties when they are listed on the US stock market.

First of all, from the perspective of the SEC, as mentioned above, it is difficult for cryptocurrencies to eliminate the application of money laundering and terrorist financing. From a standpoint, the regulatory agencies including the SEC are strict on the industry and difficult to release.

Secondly, the current legal framework is not fully applicable to the encryption industry, the supervision is not clear, and there are no rules to follow. Under uncertain factors, the SEC remains cautious and is highly likely to reject the IPO of encryption companies.

Third, for listing applications, the SEC may focus on the company’s financial report, whether the profitability is sustainable, whether the stock price can remain stable, what risks it faces, and how to protect investors.

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

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

The industry is in a critical period. The successful listing will usher in wider acceptance in the industry. However, at the same time, companies including encrypted trading platforms also need to choose and reconcile the original intentions of supervision and decentralization and anti-censorship.

Reference article:

“The latest and most complete 6 ways and procedures for going to the U.S. in 2019” by Greenfield

“Behind the listing of Coinbase: Chinese capital enters the market, valued at US$28 billion” by Deep Wave

“Coinbase is preparing to go public this year, what impact will it have on the digital currency industry? | Roasted Stars” by LongHash Blockchain Information