Author: Alex Thorn, Head of Research at Galaxy Digital
Translated by: Bai Shui, Jinse Finance
I discussed the intersection between public markets and cryptocurrencies with the team at Galaxy Digital, which led to an interesting insight - regulatory bodies are also about to undergo a massive transformation.
In a guest article, Alex Thorn, Head of Research at Galaxy Digital, explains our predicament, the changes happening now, and where he believes we are headed. I hope this provides valuable information and perspectives for everyone.
Here is Alex's guest article:
Bitcoin has been the biggest winner of the election so far. Since November 5th, the world's oldest and largest cryptocurrency, Bitcoin, has risen 40%, and there is reason to believe there will be even more upside to come.
Other crypto assets will also benefit. Investors expect a shift in the US Securities and Exchange Commission's (SEC) attitude towards digital assets, with many already writing about how a relaxation or rollback of the SEC classifying crypto assets as securities will support the crypto market and stakeholders.
Less discussed is how public markets will benefit from the US's new approach to digital assets. Since Coinbase's direct listing in 2021, only Bitcoin miners and some small SPACs have successfully tapped the public markets. With Gary Gensler taking over as SEC Chair on April 17, 2021, just four days after Coinbase's direct listing, the public markets have essentially been closed to crypto companies. But that is about to change. The public markets are about to get a taste of cryptocurrencies.
Signs of this shift may have already emerged in the past few weeks. Japanese cryptocurrency exchange Coincheck announced that it has received approval to list in the US via a SPAC. This will be the first cryptocurrency exchange to gain public market status in the US since Coinbase, but it will not be the last. Shareholders of the SPAC Thunder Bridge IV (ticker: THCP) will vote on the merger on Wednesday, December 5th, with the merger expected to be completed around December 10th.
Currently, the investable crypto stocks in the US include Coinbase, Bitcoin miners, balance sheet holders (like MicroStrategy), and a range of crypto-related fintech companies like PayPal and Robinhood. But the expected change in SEC leadership and posture may ultimately 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, brokerages, data companies, and infrastructure providers, is a boon for both venture investors and public market investors. By my count, at least 300 startups have raised $50 million or more in venture funding since 2018, with over 50 raising $100 million or more. Venture investors may help revive the flagging venture funding environment of the past two years, while public market investors will gain more ways to invest in this growing industry.
Broadening the paths to public markets will also revive the entrepreneurial environment for US cryptocurrencies. The SEC's current posture incentivizes venture investors to focus on complex, token-based trading rather than traditional businesses, which may harm the entire crypto ecosystem. Certain equity startups, particularly those directly handling digital assets like exchanges and brokerages, have already largely migrated overseas. But a shift in the regulatory environment and an open public market may revive entrepreneurial activity in the US, bringing more jobs and capital formation to the country.
Bitcoin and cryptocurrencies are not illegal in the US, but over the past four years, banks and market regulators have worked 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 US posture, crafting clear regulatory frameworks and luring companies out of the US, but that is about to change.
The market expects a major shift in the US attitude towards cryptocurrencies, which will support a series of industry areas such as stablecoins, token issuance rules, taxation, and compliance reporting. But don't forget the public markets. For US digital assets, this is a new dawn, and the public markets may be ready to seriously join the party.
