Author: Alex Thorn, Head of Research at Galaxy Digital; Translated by Bai Shui, Golden Finance
I discussed the intersection of public markets and cryptocurrencies with the team at Galaxy Digital, which led to an interesting point—regulators are also about to undergo significant changes.
A guest post by Alex Thorn, Head of Research at Galaxy Digital, explaining our situation, the changes that are currently happening, and where he believes we are headed. I hope this information and perspective is valuable to everyone.
The following guest post by Alex:
Bitcoin has been the biggest winner so far in the election. Since November 5, the world's oldest and largest cryptocurrency, Bitcoin, has risen by 40%, with reason to believe there will be more gains in the future.
Other crypto assets will also benefit. Investors expect a shift in the U.S. SEC's attitude towards digital assets, and many have already pointed out how a relaxation or rollback in the SEC's classification of crypto assets as securities would support the crypto market and its stakeholders.
Less discussed is how the public markets will benefit from the new practices around U.S. digital assets. Since Coinbase went public through a direct listing in 2021, only Bitcoin miners and a few small SPACs have successfully leveraged the public markets. The current SEC Chair Gary Gensler took office on April 17, 2021, just four days after Coinbase's direct listing, and since then, the public markets have largely been closed to crypto companies. But all of this is about to change. The public markets are about to get a taste of cryptocurrencies.
There may have been signs of this shift in recent weeks. The Japanese cryptocurrency exchange CoinCheck announced that it has received approval for a U.S. SPAC listing. This will be the first cryptocurrency exchange to obtain public market status in the U.S. since Coinbase, but it will not be the last. The SPAC's shareholders, Thunder Bridge IV (stock code: THCP), will vote on the merger on December 5 (Wednesday), with the merger expected to be completed around December 10.
Currently, the investable cryptocurrency stocks in the U.S. include Coinbase, Bitcoin miners, balance sheet holders (like MicroStrategy), and a range of fintech companies related to cryptocurrencies, such as PayPal and Robinhood. However, anticipated changes in the leadership and posture of the U.S. Securities and Exchange Commission may eventually open the public markets to crypto companies in a meaningful way, leading to a massive expansion of the crypto stock market.
The expansion of the crypto stock space, including exchanges, brokerage firms, data companies, infrastructure providers, etc., is a boon for venture capitalists and public market investors alike. According to my estimates, at least 300 startups have raised $50 million or more in venture funding since 2018, with over 50 raising $100 million or more. Venture capitalists may help revive the sluggish venture funding environment of the past two years, while public market investors will gain more ways to invest in this growing industry.
Broadening access to the public markets will also revitalize the U.S. cryptocurrency startup environment. The current posture of the SEC encourages venture capitalists to focus on complex token-based transactions rather than traditional businesses, which could harm the entire crypto ecosystem. Certain stock startups, particularly those directly dealing with digital assets, such as exchanges and brokerage firms, have mostly moved overseas. However, changes in the regulatory environment and open public markets could revitalize startup activity in the U.S., leading to more job opportunities and capital formation.
Bitcoin and cryptocurrencies are not illegal in the U.S., but over the past four years, banks and market regulators have been trying to stifle their growth or shut them down entirely. Jurisdictions like the UK, Europe, the Middle East, Hong Kong, and Singapore have capitalized on this restrictive posture from the U.S. to create clear regulatory frameworks and lure companies away from the U.S., but this is about to change.
The market expects a significant shift in the U.S. attitude towards cryptocurrencies, which will support a range of industry areas such as stablecoins, token issuance rules, taxation, and compliance reporting. But don't forget about the public markets. For digital assets in the U.S., this is a new dawn, and the public markets may seriously join this party.
