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Do we really need another Cryptocurrency Exchange IPO?

  • U.S. cryptocurrency exchange Kraken reveals that it is considering a 12-18 month timeframe for IPO
  • Market conditions may be favorable at the time for Kraken’s prospective IPO if institutional adoption kicks off

Investors in Coinbase Global’s (+1.14%) direct listing can’t be a happy lot.

Expectations were high that when America’s largest cryptocurrency exchange was listed on Nasdaq, it would usher in a golden age for digital assets.

If so, it’s hard to tell, with Bitcoin down some 40% from its all-time-high in the wake of Coinbase’s listing.

As one of a handful of cryptocurrency exchanges that are regulated, Coinbase which had an indicative direct listing price of US$250 (not to be confused with an IPO price, a listing price is just a guide to allow the market to have some form of reference), shares in the company rallied to US$342 at the open before continually plummeting.

But that’s the story for most listings isn’t it?

Because Coinbase wasn’t an IPO, it didn’t have the benefit of an underwriter or investor roadshows to help drum up investor interest or educate potential buyers about the company.

Nor did it have the support of bookmakers prepared to snap up the shares of Coinbase to keep its price up.

And IPOs are typically “underpriced” by investment banks to allow other clients a chance to benefit from an early IPO “pop.”

Coinbase didn’t have the benefit of all of that yet saw its shares rally out the gates, issuing no new shares and selling existing stock in the company.

Sure the Coinbase stocks is under water based on its last traded price in the secondary markets (OTC) of US$350, but without the crutch of an (expensive) IPO team, it hasn’t been a total washout.

So could Kraken do better?

It certainly is hoping to do so as Jesse Powell, who founded the San Francisco-based cryptocurrency exchange in 2011, told Bloomberg TV that the firm is doing “all the prep work” to become a public company, without going into specifics about a target valuation.

According to Bloomberg, Kraken was recently in talks to raise a new funding round that would value the firm at US$10 billion with an IPO potentially seeing it reach a market cap of US$20 billion, more than automaker Nissan (-2.22%) and the Royal Bank of Scotland (+0.15%).

Kraken has over 6 million customers in almost 190 countries, making it the world’s fourth largest cryptocurrency exchange by trading volume, according to data from coinmarketcap.com.

Powell has said that Kraken could IPO in the next 12 to 18 months, an eternity in the digital asset space.

But the move also portends a period when it’s make or break for institutional participation and to that end, it appears that Wall Street has leaned towards playing the cryptocurrency game.

Pressure to regulate the digital asset sphere has been mounting and the Biden administration is already on course to make progress in this area, with regulators from the various financial oversight agencies meeting to determine issues of jurisdiction and enforcement.

Kraken’s IPO could therefore be timely, especially as investors become more familiar and aware of the nascent digital asset class.

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© Copyright of Novum Global Consultancy Pte Ltd {2020, 2021}. All rights reserved.

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