Cryptocurrencies are not traded in the same manner that equities are on Wall Street. Nonetheless, a number of publicly listed enterprises are inextricably linked to the realm of cryptocurrency or other digital assets.
Cryptocurrency stocks are shares in firms that offer cryptocurrency-based services, like running crypto exchanges, investing in cryptocurrencies, or manufacturing equipment needed to mine cryptocurrencies such as Bitcoin.
Every market has risks, and crypto stocks may be subject to possible downturns in the unpredictable cryptocurrency markets. For investors that are experienced with stocks and seek crypto exposure, crypto stocks may be a good option. This is why cryptocurrency IPOs, or Initial Public Offerings, are the new trend among traditional investors.
Before we delve in further, let’s first get the basics right.
What is an IPO?
An initial public offering (IPO) is the process through which a private corporation offers crypto assets from its business to the general public in new issuance. The method allows a cryptocurrency firm to receive funds from public investors, but it must adhere to laws that require increased disclosures and transparency.
A corporation is deemed private before an IPO and is held by a small number of stakeholders. These stakeholders can include early investors such as the founders, the founders’ family, and friends, or venture capitalists who contribute funds to firms with strong development potential.
The company’s tokens are then released on the IPO launch day, with a portion reserved for the underwriters who assisted in getting it listed on a public cryptocurrency exchange. The capital invested in purchasing the issued tokens is repaid in the form of coins.
Not everyone can invest in IPOs since demand sometimes surpasses the number of coins issued to the public. Frequently, brokerage houses may only allow clients with a specified amount of assets or who fulfill certain trading standards to participate in IPOs.
Existing token holders may be subject to lock-up agreements, which restrict them from immediately selling their currencies. These lock-up clauses must be considered before investing in an IPO. Existing token holders may sell all of their coins on the market when they expire, causing price reductions.
Underwriters frequently price IPOs at a discount to guarantee that there is more demand than supply. The price is determined after the firm is appraised using many indications, including the amount of money predicted to be generated in the future.
Following an IPO, the price of a company’s coins may fluctuate dramatically as investors who missed out on the IPO come in and existing coin holders change their positions. If underwriters and investment banks overhype an IPO, the coins may incur significant first losses when trading begins.
But why would a cryptocurrency firm opt for an IPO instead of traditional crypto approaches like ICOs?
The benefits of IPO
Companies benefit from initial public offerings in a variety of ways, the most important of which is capital acquisition. A key advantage of being publicly listed for cryptocurrency firms is the greater visibility and credibility that comes with it.
Companies that are publicly listed must enhance their transparency since they are required to notify investors and shareholders of their financial and strategic condition every quarter. Companies in the crypto sector benefit from a more positive public perception thanks to improved transparency and the added confidence that comes with meeting all of the legal requirements for an IPO and being listed on a public exchange.
The additional visibility that a firm receives by being publicly listed may also bring in new consumers. A crypto corporation that has worked with authorities and crypto exchanges to IPO is more likely to be trustworthy than a startup. Furthermore, quarterly reporting explains a crypto company’s financial status, resulting in better credit borrowing terms.
Because anyone may buy and sell the company’s coins, the liquidity of these currencies is greatly increased. Increased liquidity increases the value of the cryptocurrency, making it simpler for holders to sell some or all of their holdings.
An IPO allows a firm to get access to public markets and raise funds more readily through secondary offerings. These secondary offerings are basically the sale of new or privately owned coins of a firm that has already completed an initial public offering.
The creation of new coins and the subsequent selling of them to the public may dilute the value of existing coins already on the market. Alternatively, one or more large coin holders may sell their holdings in a secondary offering and collect the profits of the sale.
Finally, if a firm is publicly listed, it may offer remuneration in the form of its coins, which are more liquid due to their listing on crypto exchanges. Better management may be attracted by offering coin incentives in exchange for helping the firm expand. If the company’s value rises, the price of its coins or tokens will rise as well.
To sum it all up, the core advantage of moving forward with an IPO is the added public visibility and enhanced credibility.
Which cryptocurrency firms have gone public?
There are several blockchain firms that have gone public over the past years. Some of the most notable ones are:
Coinbase Global Inc.
Coinbase (ticker: COIN) operates as one of the leading cryptocurrency exchanges in the United States. In April 2021, it was the first true cryptocurrency platform to go public. Coinbase makes revenue by allowing users to purchase and sell a wide range of digital assets on its platform.
MicroStrategy (MSTR) is an analytics software firm that has amassed a significant amount of Bitcoin, the first and most valued cryptocurrency. MicroStrategy stated on February 14 that it possessed more than $5.2 billion in Bitcoin, which was close to the company’s total market valuation at the time.
Marathon Digital Holdings Inc
Marathon (ticker: MARA) is another firm that is extensively involved with Bitcoin, allowing investors to obtain exposure to the commodity without directly purchasing it. Marathon mines Bitcoin directly and invests in the digital currency. Marathon reported that it had around $387 million in Bitcoin by the end of 2021.
Block (SQ), previously Square, is a financial services and payment processing firm. It operates in numerous areas relating to blockchain technology and Bitcoin, and its popular Cash App application lets users trade in equities and Bitcoin. Block stated that it had $317 million in digital assets by the end of 2021.
So, What does crypto companies going public mean for the industry?
Going public with a cryptocurrency company may have a positive or negative impact on the cryptocurrency market as a whole. This is due to the fact that it is one of the market’s mainstays. As a result, any changes it undergoes will immediately influence the superstructure that relies on it, depending on the outcome of such activities.
We can forecast that one of the beneficial effects of more cryptocurrency firms going public will be an increase in the price of basic cryptocurrencies. This projection is based on a thorough examination of the current market. Going public will boost investor trust, resulting in an infusion of new stakeholders eager to participate in the cryptocurrency market.
Naturally, the DeFi market will follow suit. The demand for the services provided by this market will skyrocket among people looking to buy digital assets quickly. Indeed, a trading frenzy is predicted to occur ahead of the initial sale of a company’s shares, and so the number of people clamoring to buy it will increase.
However, while this move will open up a whole new universe of possibilities, it may also result in a number of negative outcomes. In contrast to the expected barrier-breaking event, it may eventually act as a barrier-creating event. This hypothesis stems from the fact that cryptocurrency platforms do not use fiat money in any manner; they are all primarily crypto-centric. This fact would only increase constraints and cause skepticism and prudence among casual investors.
Another negative potential stems from the unpredictability of IPO participation levels and the degree of fallout that may occur. Facebook’s IPO had a decent attendance at the launch. The next day, however, share values dropped, and the delight of important stakeholders faded.
We may see a similar outcome for cryptocurrency platforms if the firms’ entry into the traditional financial market fails to live up to the anticipation among typical investors. People in the crypto space as a whole could be very disappointed by the results. They may then cause a significant dip in the prices of certain cryptocurrencies that traders purchased in anticipation of a significant increase in price.
Cryptocurrency IPOs are undeniably major milestones for the cryptocurrency and blockchain industries as a whole. However, there are still dangers that the sale of their shares would result in either huge price hikes or a big drop, hurting the average investor’s confidence in digital assets. Whatever scenario plays out, it’s a win-win situation for the crypto firms. This is due to the firms’ increased presence in the traditional financial sector.
Crypto firms going public is a significant market signal. However, no one is certain of its long-term repercussions on the sector, whether negative or positive. Even so, these listings represent a significant step forward for the blockchain sector, indicating the acceptance of cryptocurrencies in traditional finance. By continuing to offer consumers services related to the cryptocurrency industry, the success of these firms and their direct listing will herald the next wave of users into the crypto market.