Regulatory Climate Forcing Firms to Reconsider Crypto IPOs

Crypto prices are rebounding to start 2023, perhaps giving rise to a thaw in the crypto winters, but there’s still a corner of the market that’s ice cold: Initial public offerings (IPOs) by companies with ties to the cryptocurrency universe.

Intensifying scrutiny on crypto firms from the Securities and Exchange Commission (SEC) is standing in the way of a variety of crypto companies accessing public equity markets. That’s a big deal because to list on the Nasdaq or New York Stock Exchange (NYSE), companies must first receive the SEC’s stamp of approval.

The recent collapse of FTX and the ensuing contagion that is having on the crypto space is among the reasons the SEC is increasing regulatory scrutiny on private crypto firms that have aspirations of going public.

“The SEC didn’t set out to stop the companies from going public, according to a person familiar with the matter, but crypto firms believe the pace of the agency’s review hurt their efforts, particularly after the crash of a well-known cryptocurrency and the failure of a large crypto hedge fund that hit many exchanges and lenders. The bankruptcy of crypto exchange FTX and a bear market in digital asset prices may keep the door closed,” reported the Wall Street Journal.

Currently, the universe of U.S.-listed companies with direct crypto exposure is relatively small and consists largely of bitcoin miners – themselves an embattled asset class following last year’s declines by the largest digital currency.

Take the case of the VanEck Digital Assets Mining ETF (DAM). DAM, which follows the MVIS Global Digital Assets Mining Index, holds just 20 stocks. Other crypto-correlated exchange traded funds expand beyond bitcoin miners to hold positions in companies such as Block (NYSE: SQ) and PayPal (NASDAQ: PYPL). Some even hold shares of old-guard firms such as Mastercard (NYSE: MA) and Visa (NYSE: V). However, those companies have diverse business models and aren’t reliant on crypto.

Mimicking those approaches is easier said than done, but crypto-related firms seeking Nasdaq or NYSE listings may want to consider less crypto dependence in an effort to curry favor among regulators.

“The agency still holds clout when companies want to access the public markets. SEC accountants and lawyers ask potential securities issuers questions about financial disclosures, legal risks, the impact of market disruption, and other subjects. The SEC says it checks disclosures only to make sure they provide investors with the information required by law,” according to the Journal.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.