Season of IPO’s: Why Crypto Companies Are Expanding on a $68 Trillion Market

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Game of Life

5 min readJul 16, 2019

With summer well underway, it looks like some of that summer heat is finally thawing the months-long crypto winter. Global brands like Starbucks and Facebook have announced plans to release their own blockchain apps, marking what could be the start of an overall corporate shift to the blockchain. At the same time, blockchain-specific companies have begun expanding their efforts to the traditional market.

Buoyed by these promising signs, blockchain companies are attempting to revive Initial Coin Offerings, a largely failed analog of Initial Public Offerings. Their ultimate goal? Conquer the $68 trillion stock market.

Bitmain, a mining giant that already tried to enter the traditional stock market once in Japan, has again set its sights higher than other companies. In June, the company unveiled renewed plans to hold an IPO, this time on the US market.

IPOs explained

Holding an IPO is a way for a new company to get the funds it needs to launch, raising money from investors with the promise of dividends later on in the form of shares. If the company raises the capital needed to get it to the point of making a profit, everyone wins.

Initial Coin Offerings function essentially the same way, with one key difference: IPO’s are closely regulated, required to disclose their financial information to the public as an important precaution against fraud. ICOs are not.

This lack of regulation leaves the door open to fraudsters. It’s nearly impossible for investors to verify the financial claims of companies holding ICOs, making investing in one fraught with risk.

Scale is another key difference. According to the World Bank, the total market cap of the stock market was over $68 trillion in 2018. The crypto total market cap, at the time of writing, is only $324 billion — far from puny, but nowhere near the scale needed to compete.

Bitmain’s IPO bid is a chance for the company to reach beyond the crypto niche and pull in the money to establish itself more widely. If it is successful, it could lay the foundation for other crypto companies to do the same.

Bitmain undeterred

According to Bloomberg, Bitmain has set its sights on raising $300–500 million on the US stock market, with placement happening as early as this year. This has yet to be confirmed by Bitmain.

For its US debut, the company has set its sights significantly lower than its first IPO attempt. In early 2018, Bitmain tried for the Hong Kong Stock Exchange (HKEX), with plans to raise $3 billion from investors.

The year before the HKEX bid, Bitmain had taken in $1 billion in net profits. In the first half of 2018, it repeated the feat. But things quickly changed when the crypto market crashed in the second half of 2018. Bitmain lost $500 million in a matter of months and was soon laying off employees in droves.

And the crypto winter’s effects didn’t stop there. Bitmain’s primary source of revenue came from mining and the sale of mining equipment. As the market continued to freefall, HKEX grew skeptical that Bitmain would be able to follow through on its promises to investors. Ultimately, HKEX denied their application and Bitmain lost its shot at the traditional market.

Mining goes to market

Bitmain was not alone in its plans: Canaan and Ebang, both manufacturers of mining equipment, also intended to launch IPOs on the Hong Kong exchange. Like Bitmain, their plans were thwarted by the crypto collapse and regulatory uncertainty.

Ebang has not indicated any definitive plans at a second attempt but Canaan is again following in the footsteps of Bitmain. That’s according to Bloomberg, which reported that the company, after dropping its Hong Kong plans, will begin selling shares on the US exchange.

Bithumb and Galaxy Digital cut the queue

For crypto companies aiming to reach the public market, there are three main drawbacks of holding an IPO: it is expensive, slow, and dependent on the whims of investors. For these reasons, a reverse merger is an appealing alternative for reaching the public market.

In this scenario, a private company gains direct access to the public market by purchasing another company that is already publically traded, thereby negating the need for an IPO. Galaxy Digital, founded by Wall Street veteran Michael Novogratz, took this path to Canada’s public market in 2018. Nearly a year after its first trades of public shares, the company appears to be holding its own, and then some: in its first quarterly report of 2019, Digital Galaxy reported return on investment of 123%.

So far, only a handful of crypto companies have attempted a reverse merger on the US exchange. For the most part, they are small companies with market caps between $11 and $20 million, and none of them are crypto exchanges. BTHMB could change this.

In January 2019, BTHMB Holdings, the holding company under which South Korean crypto exchange Bithumb operates, signed an intent to merge with Blockchain Industries, Inc, a company already traded publically. If the deal is finalized, BTHMB will become the first crypto-exchange operating on the US stock market.

More than hype?

Digital Galaxy is often held up as an example of a crypto-public market success story. The caveat, however, is that it’s a success story — what few other crypto companies there are on the public market are small and unlikely to prompt any major shift in the current narrative.

Bitmain and Canaan are ready (again) to try, but are their efforts genuine, or attempts to generate income after botched first attempts? As of yet, there is no clear answer. If they are successful, it could potentially be the beginning of a new era in crypto. At this stage in the game, contributing to an IPO doesn’t pose any less risk than an ICO. Any investor considering contributing to a crypto IPO would be wise to thoroughly vet the company and make sure their decision comes from facts, not hype.

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