By Joe Light
Big crypto firms haven't had much hope of going public over the past four years. All that's set to change in January.
President-elect Donald Trump's promise to reverse course on President Joe Biden's digital-asset crackdown is spurring hope that that the initial-public-offering market could soon open to stablecoin provider Circle Internet Financial, trading platform Kraken, and other firms that have said they'd like to go public.
Going public through an IPO was a long shot for crypto firms during the Biden administration. The Securities and Exchange Commission under Chair Gary Gensler was slow to consider filings from companies like Circle, which first sought to go public through a merger with a special purpose acquisition company. Circle gave up on that dream in December 2022, after the bankruptcy of exchange FTX soured investors on the crypto market.
Circle refiled for a traditional IPO in January, and there's ample reason to think the stars will align for the firm, and others like it, to be successful this time.
"Due to the nature of the registration process, we cannot comment," said a Circle spokesman. "I can say that becoming a public company has always been a part of Circle's core strategy, underscoring our commitment to trust and transparency."
One reason is that Trump's SEC chair, unlike Gensler, is likely to waive off the concerns that stymied crypto's earlier attempts to go public. In Circle's case, for example, the SEC spent months asking the company to modify its offering documents to reflect concerns that its stablecoin, USDC, might later be deemed a security, according to documents obtained by Barron's . That would hamstring Circle's business model. Trump has already said he wants to put in place pro-crypto policies and personnel, and ending the SEC's stance that most cryptocurrencies are securities is the industry's biggest expectation.
The second reason is Trump's election has ushered in exuberance in the crypto market: Coinbase Global stock has soared 65% since the election. If Circle or another firm can make it to the finish line, there is ample investor appetite to buy.
One big beneficiary of the turnaround could be Coinbase itself: It is partnered with Circle on USDC, which has a market capitalization of about $40 billion. Stablecoins are typically pegged to the dollar and are backed by reserves like Treasuries and other relatively safe assets.
As part of a recent deal with Circle, Coinbase acquired about 3.5% of Circle's equity, which it valued at $51.1 million, according to Coinbase's annual report in February. Over the summer, Circle shares were said to have traded on the private market at a value of around $5 billion, according to CoinDesk, which would make Coinbase's stake worth three times that, even before Trump's election. Coinbase also has stakes in dozens of other crypto companies through its venture-capital arm.
Coinbase didn't respond to a request for comment.
An IPO boom would also likely lead to higher crypto exposure in mainstream investors' portfolios. Right now, there aren't many crypto-tied stocks beyond Coinbase, MicroStrategy, and crypto miners. Though retirement investors can get direct exposure to Bitcoin through one of the many exchange-traded funds that hold it, to date an investor would gain little exposure in a typical stock-bond portfolio. All that will change if more companies go public.
For venture-capital firms that are deep into crypto, such as Andreessen Horowitz, an IPO boom would give them an exit opportunity.
"A shift at the SEC on digital assets could lead to an explosion of public offerings and a dramatic expansion of the crypto equities landscape," wrote Alex Thorn, head of firmwide research at Galaxy Digital in a post on X. In a guest post for The Pomp Letter, Thorn said the opening of IPOs to crypto firms could encourage more companies to build in the U.S., where capital markets are the strongest.
If 2024 was the year cryptocurrencies broke out, 2025 might be the year of the crypto IPO.
Write to Joe Light at joe.light@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 03, 2024 16:38 ET (21:38 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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