One of the best options for larger crypto companies to maximize their liquidity reserves seems to be by going public.
2021 has been a rollercoaster year for the crypto industry, with Bitcoin (BTC) scaling up to an all-time high of $65,000 earlier this year in April, only to dip down to the sub $30,000 zone just months later. However, a moment that is widely considered by many to be a tipping point for the industry — at least in terms of mainstream legitimization — was when Coinbase (COIN) made its debut on Nasdaq via a direct listing.
Leading up to April 14, the day of the aforementioned listing, COIN’s reference price was set at $250. However, it is worth recalling that at the time, the digital asset market was at its absolute apex, as a result of which the COIN price rose sharply just minutes after its launch climbing as high as $430. That said, the asset’s price has since continued to dip steadily, currently trading at a 90-day loss of approximately 40% at a price point of around $242.
COINs relatively lackluster performance can, in part, be attributed to the bearish environment that has engulfed the market over the last few months. Since the stock was listed, the total market capitalization of the crypto market fell from $2.1 trillion to as low as $1.28 trillion. Despite this turbulence, however, a number of firms felt confident enough to go ahead and announced their IPOs.
Not only that, venture capital and institutional funds have continued to pour money into this space. For example, data available online suggests that more than $17 billion has already entered into various firms operating within this market. In May alone, Block.one, a blockchain software company, injected a whopping $10 billion worth of digital assets and cash into a new crypto exchange Bullish Global. Similarly, hardware wallet manufacturer Ledger SAS was also able to raise a cool $380 million from investors, led by 10T Holdings recently.
Why is COIN on the decline?
As things stand, COIN seems to be operating somewhere between the crypto and stock markets, i.e. the offering is a value-id based on crypto tech but could not play by stock market rules. Antoni Trenchev, co-founder of crypto lending firm Nexo, told Cointelegraph that COIN’s valuation is absolutely fine and that the asset is moving just like any other similar stock, adding:
“When there’s trouble on the horizon in the business’s industry, the stocks of companies working in the field tend to suffer. After all, Coinbase’s IPO took place in April with cryptocurrencies still circling all-time highs. Let’s not sugarcoat things, the market has dipped substantially.”
Despite Trenchev’s lack of apparent concern regarding Coinbase’s stock performance, Kadan Stadelmann, chief technological officer for blockchain solutions provider Komodo, believes that one of the biggest reasons for COINs decline has been the rise of decentralized exchanges (DEX). In their most basic sense, DEXs can be thought of as novel decentralized finance-, or DeFi-based offerings that seek to offer lower trading fees as well as better market maker incentives.
On the subject, Stadelmann further highlighted that in the past, Coinbase had focused its growth efforts exclusively on the United States market, something that seems to have hampered the adoption of COIN, adding:
“This is starting to change, though, with recent announcements that Coinbase would launch German operations and expand hiring in India. These moves are promising, but even with ample resources, it takes time to build a business presence in new markets where other crypto firms have established offerings.”
Trenchev too believes that just because Coinbase’s stock is being traded publicly doesn’t mean that it has reached mainstream investors. That said, he is convinced that the exchange is positioned perfectly to tap into a river of public investments. “The secret ingredient that’s currently missing is time. Mainstream investors need time to familiarize themselves with the crypto industry in order to confidently put money into companies like Coinbase. In this sense, COIN has yet to see an influx of investors,” he added.
Are traditional investors still a bit wary of crypto?
Providing his thoughts on why so many investors are still not sure about crypto-associated offerings like COIN, Red, a community moderator for decentralized yield farming aggregator Harvest Finance, told Cointelegraph that when it comes to the traditional market, investors are still confounded by the market’s volatility and staying power, adding: “While Coinbase is very innovative and a market leader in many respects, if the traditional markets are still uncertain of the underlying product, their COIN offering is likely to suffer from the same negative sentiment.”
Furthermore, as regulators continue to pay more attention to this space, primarily by attempting to put various financial “safeguards” in place, Red believes that a growing list of centralized entities will look to ensure that their asset offerings are fully compliant: “Going through a listing process via traditional markets helps them to engage with said regulators and legal entities.”
On the matter, Ganesh Swami, CEO of Covalent, a blockchain data analytics company, told Cointelegraph that the next wave of crypto adoption will be the by-product of all the holistic regulatory developments that are currently taking place across the globe. He further emphasized:
“We must educate regulators on the benefits of DeFi and Web 3.0 to create regulations that will help us build a decentralized future together. With compliant instruments like the crypto ETFs and KYC-enabled DeFi products emerging in the U.S. and Canada, there is a unique opportunity for regulatory frameworks across different regions to step up and join the force.”
Crypto firms going public, a trend for the future?
Despite Coinbase’s stock price action failing to impress, the company has pioneered a unique path for how crypto-native platforms can grow. As a public company, the firm is now required to disclose all sorts of information about its business operations, something that, over time, will help foster more trust for the crypto market.
On the subject, Trenchev is of the view that as regulations surrounding the crypto sector continue to become clearer, it will be easier for blockchain-native firms to function in the world of traditional finance, with IPOs most likely becoming a common corporate strategy for most major crypto entities at some point in the future.
Lastly, Joshua Frank, co-founder and CEO of crypto data firm The TIE, told Cointelegraph that even though there have not been many non-crypto companies making large acquisitions within the traditional market, given the current circumstances, if larger crypto companies want liquidity they will need to be going public: “We will definitely see a considerably larger amount of public offerings in the next couple of years.”
The list is already growing, fast
In mid-July, Core Scientific, one of the largest Bitcoin mining operations in North America, released a statement showing that it had finalized a $4.3 billion merger with Power & Digital Infrastructure Acquisition Corp — a special purpose acquisition company (SPAC). As a result, Core will now be joining a small list of U.S.-based publicly traded Bitcoin mining companies that also includes Riot Blockchain and Marathon Digital.
Similarly, Argo Blockchain, a United Kingdom-based publicly traded company focused on crypto mining, has recently initiated a process through which it seeks to apply for a U.S. IPO. In this regard, a registration brief filed by the firm with the U.S. Securities and Exchange Commission (SEC) shows that Argo is pursuing a dual-listing and initial public offering of American Depositary Shares.
Lastly, amid China’s regulatory crackdown on its local cryptocurrency market which resulted in Bitcoin’s price stalling heavily around the $32,000 range, global fintech firm Circle announced its decision to host an initial public offering that is expected to take place in the near future. Circle’s merger with Concord Acquisition Corp, a SPAC, has the firm valued at $4.5 billion, with the combined entity expected to debut on the New York Stock Exchange under the ticker CRCL before the end of the year.
That said, whether a bear or bull market, the crypto industry is undoubtedly gaining a lot of momentum. However, the question still remains: How long will the industry take to find its footing within the realm of traditional finance? Overall, interest in investing in crypto companies is a positive sign for the industry as a whole, especially as more VC firms and funds continue to inject liquidity into this space as well as crypto firms going the IPO route.