In a procedure known as an initial public offering (IPO), a formerly private corporation sells newly issued crypto assets of its business to the general public. A cryptocurrency firm may use this method to acquire funds from public investors. But, to do so, it must adhere to rules that require it to be more transparent and provide more information to the public.
A corporation is deemed private and has a limited number of shareholders before it becomes public. Investors in the company at an early stage might include the founders themselves—the founders’ friends and family or venture capital firms.
From a regulatory perspective, an initial public offering is a significant milestone for companies operating in the bitcoin field. Initially, many people were suspicious of cryptocurrencies because they were thought to be bogus get-rich-quick schemes.
IPO requires a crypto firm to work with underwriters or investment banks. Who, for a fee, will assess and bear the risks associated with releasing the currency to the public? When a corporation first releases its coins to the public, it often employs the services of an investment bank (the underwriter).
Following an IPO, a company’s digital assets will begin trading on cryptocurrency. Accordingly, “going public” is another name for an IPO. In addition to raising reporting standards due to regulatory constraints. Going public also boosts the crypto firm’s reputation when it demonstrates capable of meeting all of its commitments.
Crypto Companies Finally Go Public
Discussions about IPO in the cryptocurrency market are widespread amongst the industry’s top firms. However, let’s put this into perspective.
On January 7, 2021, cryptocurrency joined the ranks of the trillion-dollar asset classes. All cryptocurrency market caps summed up to one trillion dollars. It was a huge deal!
Here we’ll analyze the IPOs for BlockFi, Coinbase and Bakkt. They were the three significant IPOs in the cryptocurrency space in 2021.
The Bitcoin exchange Coinbase is perhaps the most well-known of all cryptocurrency companies. Suppose you’re new to investing in Bitcoin or cryptocurrencies in general. Coinbase offers a dead easy onboarding platform where you can acquire Bitcoin and other cryptocurrencies. Either with a debit card or bank transfer. Coinbase Pro, a significant cryptocurrency exchange, has an order book and many different orders, making it ideal for experienced traders.
The firm received clearance from the U.S. Securities and Exchange Commission on March 31, 2021, and as of April 1, 2021. It began trading publicly traded shares listed on the Nasdaq under the symbol $COIN. On the scheduled day, Coinbase was released to the public with considerable hype and debate among business officials about their lofty goals for the firm.
New York Times called it a “landmark moment” for bitcoin and the cryptocurrency sector. The stock’s worth even surpassed predictions. Nasdaq established a premarket reference price of $260 per share. They started at $351. At market close, the price had decreased to $326, giving the company net worth of $86 billion.
It’s possible to use BlockFi as a cryptocurrency bank. However, BlockFi, unlike a conventional bank, offers interest on deposits. The current interest rate on USDC deposits is 8.6%, while Bitcoin deposits may earn 5%.
BlockFi is a financial institution that provides cryptocurrency deposit interest and lending products. A user may put up Bitcoin as collateral for a loan.
There has been a spate of high-profile public market debuts of cryptocurrencies. It began with Coinbase in April last year and included everyone from Circle to Block. A BlockFi stock offering followed in their footsteps, offering a positive outlook.
This week, state securities authorities in the United States started challenging the legality of the BlockFi Interest Account (BIA), the company’s flagship product, further complicating the company’s path to Wall Street.
According to the Texas State Securities Board, a program that offered substantial interest payments to cryptocurrency depositors had more than $16 billion in assets as of August 31. The Texas Department claims in its complaint that it informed BlockFi of the infractions on July 20, 2021.
State authorities in Texas, Alabama, and New Jersey all claimed that BIA is unregistered security that violates their laws. BlockFi was given till the next year to explain New Jersey. The state has threatened to suspend the BIA IPO if the two cannot agree.
Every cryptocurrency investor who survived the 2017 high and ensuing bear market should have a special place in their hearts for Bakkt. To recap, Bakkt was supposed to be the savior of crypto. The purchasers would flood back in as soon as the Bakkt derivatives platform became life, sending the price of Bitcoin soaring over its previous all-time high.
Bakkt declared an IPO in 2021. Following the IPO, Bakkt had access to $2.1 billion in the capital, giving it a solid foundation upon which to expand.
In October 2021, Bakkt Holdings went public and quickly became a popular stock. The month of December brought a reverse change in fortunes. In little over a month and a half, BKKT stock has dropped about 75%.
On November 12, the firm reported its first quarterly results since becoming public. Third-quarter revenue was up 36% year over year. A mere $9.5 million was collected. In addition, costs increased by 65% compared to the same year.
Ripple, the company behind the XRP ledger and token, has talked about going public several times. CEO Brad Garlinghouse has spoken about the company going public in the U.S. after the current lawsuit against them clears up.
Being sued by the S.E.C. who alleges XRP is a security, has stopped any IPO plans for the moment. The two-year lawsuit seems to be going in favor of Ripple, and if the company sticks to its plans, it will go public soon after.
Cryptocurrency companies going public is one of the best things to move the industry forward. This will force companies to publish regular and public reports, audits and tax filings. Bringing regulation on that side of the cryptocurrency industry is much needed.
Will Crypto IPOs Be Profitable?
The absence of a Bitcoin ETF is one of the primary reasons for the potential success of these crypto IPOs. Institutional investors that need crypto exposure but do not wish to own BTC may purchase Coinbase or Bakkt. The greater the size of the bitcoin ecosystem, the better these businesses will perform.
Stock is much different than cryptocurrency and would provide a different opportunity. Stocks represent ownership in the company, a contract that even with one share you own 0.0001% of the company and are therefore legally entitled to company profits. Shareholders often get to vote in major company decisions and are heavily regulated by the SEC.
Cryptocurrencies are an asset that investors purchase because they believe the demand of the ecosystem that utilizes the token will increase. If this happens and the tokenomics lineup the tokens owned should theoretically increase in value. Cryptocurrencies are vastly different than stocks.
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