Crypto Public Markets are About to Open
This is an op-ed Alex wrote in The Pomp Letter on Dec. 3, 2024.
Bitcoin is the election’s biggest winner so far. The world’s oldest and largest cryptocurrency is up 40% since Nov. 5 and there is reason to believe that more gains are coming. It really is true that the red wave helped the orange coin.
Other crypto assets stand to gain as well. Investors are anticipating a shift in the SEC’s approach to digital assets, and many have written about how a relaxation or rollback of the SEC’s classification of crypto assets as securities would be supportive for crypto markets and stakeholders.
Less discussed is how public markets might benefit from a new US approach to digital assets. Since Coinbase went public through direct listing in 2021, only bitcoin miners and a few small SPACs have successfully tapped the public markets. The current chair of the SEC, Gary Gensler, was confirmed to his post on April 17, 2021, just four days after Coinbase’s direct listing, and since then the public markets have largely been closed to crypto firms. But that’s all about to change. Public markets are about to get a taste of crypto.
A hint of this shifting approach may have emerged over the last several weeks. CoinCheck, a Japanese crypto exchange, announced it had received approval to go public via SPAC in the U.S. This would be the first crypto exchange to achieve public markets status in the U.S. since Coinbase, but it won’t be the last. Shareholders of the SPAC, Thunder Bridge IV (Ticker: THCP), are due to vote on the merger by the end of Wednesday, Dec. 5 and the combination is expected to close on or about Dec. 10.
The investable crypto equity universe in the U.S. is currently comprised of Coinbase, bitcoin miners, balance sheet holders (like MicroStrategy), and a range of crypto-adjacent fintechs like PayPal and Robinhood. But the anticipated change in leadership and posture at the SEC could finally open public markets to crypto companies in a meaningful way, leading to a vast expansion of the crypto equity landscape.
An expansion in the crypto equity landscape to include exchanges, brokerages, data firms, infrastructure providers, and more would be a boon for both venture and public markets investors. By my count, at least 300 startups have raised venture rounds with deal sizes of $50m or more since 2018, and more than 50 raised rounds of $100m or more. Venture investors could finally realize exits, helping to revitalize a venture fundraising environment that has languished over the past two years, while public markets investors would gain a greater menu of ways to invest in the growing sector.
A widening pathway to public markets would also revitalize the entrepreneurial environment for crypto in the U.S. The current SEC’s posture has incentivized venture investors to focus on convoluted token-based deals over traditional businesses, perhaps to the detriment of the crypto ecosystem as a whole. Certain equity startups, particularly those that handle digital assets directly like exchanges and brokerages, have mostly moved offshore. But changes in the regulatory environment and accessible public markets could see a resurgence of startup activity in the United States, leading to more American jobs and capital formation.
Bitcoin and crypto are not illegal in the United States, but over the last four years bank and market regulators have worked diligently to stifle their growth or shutter them entirely. Jurisdictions like the U.K., Europe, the Middle East, Hong Kong, and Singapore, and others, have capitalized on this restrictive U.S. posture by enacting regulatory clarity and coaxing firms away from the U.S., but this is about to change.
Markets are anticipating a significant shift in the U.S. that will be supportive of a range of industry segments, like stablecoins, token issuance rules, tax and compliance reporting, and more. But don’t forget the public markets. It’s a new dawn for digital assets in America, and the public markets are likely to join the party in earnest.
Read the original post in Pomp’s newsletter here.
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