Author: Alex Thorn, Head of Research at Galaxy Digital
Compiled by: Bai Shui, Golden Finance
I discussed the intersection of public markets and cryptocurrency with the team at Galaxy Digital, which led to an interesting point — regulators are also about to undergo significant changes.
A guest article by Alex Thorn, Head of Research at Galaxy Digital, explaining our situation, the changes that are currently happening, and where he believes we are heading. I hope this provides valuable information and insights for everyone.
Here is a guest article by Alex:
Bitcoin is the biggest winner of the elections so far. Since November 5, the world's oldest and largest cryptocurrency, Bitcoin, has risen by 40%, with reason to believe that there will be more gains in the future.
Other crypto assets will also benefit. Investors expect a shift in the U.S. Securities and Exchange Commission's attitude towards digital assets, and many have written about how the relaxation or rollback of classifying crypto assets as securities by the SEC will support the crypto market and its stakeholders.
Less discussed is how the public market will benefit from the new practices of 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 market. Current SEC Chairman Gary Gensler took office on April 17, 2021, just four days after Coinbase's direct listing, and since then, public markets have essentially been closed to crypto companies. But all of that is about to change. The public market is about to taste cryptocurrency.
There may have been signs of this shift in recent weeks. The Japanese cryptocurrency exchange CoinCheck announced that it has received approval for listing through a U.S. SPAC. This will be the first cryptocurrency exchange to gain public market status in the U.S. since Coinbase, but it will not be the last. The SPAC shareholders of Thunder Bridge IV (stock code: THCP) are expected to vote on the merger on December 5 (Wednesday), with the merger anticipated 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 cryptocurrency, such as PayPal and Robinhood. However, the anticipated changes in the leadership and posture of the U.S. Securities and Exchange Commission may ultimately open public markets to crypto companies in a meaningful way, leading to 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. According to my statistics, since 2018, at least 300 startups have raised $50 million or more in venture funding, with over 50 raising $100 million or more. Venture capitalists may help revitalize 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 pathways to public markets will also revitalize the startup environment for cryptocurrency in the U.S. The current posture of the SEC incentivizes venture capitalists to focus on complex token-based transactions rather than traditional businesses, which may harm the entire crypto ecosystem. Certain equity startups, particularly those directly handling digital assets, such as exchanges and brokerage firms, have largely moved overseas. However, changes in the regulatory environment and an open public market may revitalize startup activity in the U.S., bringing more job opportunities and capital formation.
Bitcoin and cryptocurrencies are not illegal in the U.S., but for the past four years, banks and market regulators have been trying to curb their growth or shut them down completely. Jurisdictions like the UK, Europe, the Middle East, Hong Kong, and Singapore have leveraged this restrictive stance from the U.S. to establish clear regulatory frameworks and lure companies away from the U.S., but this is about to change.
The market expects a major shift in the United States' attitude towards cryptocurrency, which will support a range of industry sectors such as stablecoins, token issuance rules, taxation, and compliance reporting. But don't forget about the public markets. This is a new dawn for digital assets in the U.S., and public markets may seriously join this party.
