China-based mining titan Bitmain Technologies has discreetly filed an application for an Initial Public Offering with the United States Securities and Exchange Commission.
China-based mining titan Bitmain Technologies has discreetly filed an application for an Initial Public Offering (IPO) with the United States Securities and Exchange Commission (SEC).
According to an Oct. 29 report from Tencent News citing anonymous “informed sources,” German multinational Deutsche Bank is sponsoring the application. The amount sought to be raised by the offering has not been specified.
Deutsche Bank reportedly sponsoring the application
Tencent News further reports that the IPO plans have been dominated by Bitmain co-founder Jihan Wu and Chief Financial Officer Liu Luyao.
To bolster chances of success, the firm has purportedly hired Zheng Hua, former Nasdaq representative for China, as a consultant to the firm.
The SEC’s review process will reportedly entail three rounds of inquiries and last an estimated minimum of 1-2 months.
A further unnamed industry source, reportedly familiar with the SEC’s listing procedures, told Tencent:
“The SEC has no biased position toward the blockchain business, but is rather concerned about professional and technical issues.”
The source claimed that the company’s connection to the Bitcoin (BTC) fork Bitcoin Cash (BCH) is likely to be the largest obstacle facing the application.
Industry onlookers will remember Bitmain’s earlier, ill-fated attempt to file a major $3 billion IPO on the Hong Kong Stock Exchange in September 2018, which lapsed after multiple controversies this March.
This week has been another eventful week for Bitmain with Jihan Wu revealing that fellow co-founder Micree Ketuan Zhan had left the company amid signs of internal company drama.
On Oct. 28, rival Chinese mining firm Canaan Creative filed for an IPO with the U.S. SEC to raise $400 million, eyeing a listing on Nasdaq under the ticker CAN.
Earlier this month, Bitmain opened what it claims is the “world’s largest” facility for Bitcoin mining in Rockdale, Texas.
Mining rig manufacturer Canaan has filed for an IPO with the U.S. Securities and Exchange Commission to raise $400 million on the Nasdaq Global Market. Prior to this filing, the company had also attempted to go public in Hong Kong and China. Credit Suisse and Citigroup are among its underwriters.
Canaan Inc., a holding company that owns China-based Canaan Creative, filed a registration statement with the U.S. Securities and Exchange Commission (SEC) on Oct. 28 for an initial public offering (IPO). “We are offering American depositary shares, or ADSs. Each ADS represents Class A ordinary shares, par value US$0.00000005 per share,” the filing details. The company hopes to raise $400 million.
The underwriters named in the filing for the IPO are Credit Suisse, Citigroup, China Renaissance, CMBI, Galaxy Digital Advisors, Huatai Securities, and Tiger Brokers. The company plans to apply to list its ADSs on the Nasdaq Global Market under the symbol CAN. Canaan also told the SEC that, based on a report by independent research firm Frost & Sullivan which it paid for:
We were the second largest designer and manufacturer of bitcoin mining machines globally in terms of computing power sold in the six months ended June 30, 2019.
The company plans to use the proceeds to research and develop ASICs related to AI and blockchain algorithms and applications, expand its AI and blockchain business globally, optimize supply chains, and repay debts.
Canaan attempted an IPO in Hong Kong last year but let the application lapse in November. The South China Morning Post reported that Hong Kong regulators said IPOs by cryptocurrency businesses are “premature.” The company also attempted to go public in China three years ago through a reverse merger by buying a Shandong-based electric equipment maker, but that plan also fell through.
Canaan’s Nasdaq IPO filing comes only days after Chinese President Xi Jinping commented on the development of blockchain technology in China which sent shares of blockchain and digital currency-related firms soaring. Some even speculated that Xi’s speech caused the recent hike in prices of bitcoin and other cryptocurrencies.
About Canaan and Avalonminers
Founded in 2013, Canaan provides “supercomputing solutions through our proprietary high-performance computing ASICs,” its registration statement reads. The company currently sells bitcoin mining machines under the Avalonminer brand and mining machine parts. In July, the company started leasing its mining machines.
The company’s total revenue was $394.1 million in 2018, a 106.8% increase year-on-year, but its net income fell 67.4% last year to $17.8 million. For the six months period ending June 30, the total revenue fell 85.2% compared to the same period last year to $42.1 million. The company also recorded a net loss of $48.2 million during that time period.
According to the filing, since the company has less than $1.07 million in revenue for the last fiscal year, it qualifies as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). “An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise not applicable generally to public companies,” the filing details.
The company recently introduced two new lines of Avalonminers: the A1146 and the A1166. The former rig processes bitcoins’ hashes at speeds of 46-56TH/s, with a power efficiency rated at around 57J/T, and a price tag of $1,978. The latter costs $1,204 and performs at 66-68TH/s with a power efficiency of around 47J/T. Both are expected to ship in February, according to the company’s website.
What do you think about Canaan filing for an IPO in the U.S.? Do you think the company will successfully raise $400 million? Let us know in the comments section below.
Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
Images courtesy of Shutterstock and Canaan.
Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.
Chinese cryptocurrency mining giant Canaan Creative has filed for an initial public offering with the U.S SEC to raise $400 million.
Chinese cryptocurrency mining giant Canaan Creative has filed to be a publicly-traded company in the United States.
On Oct. 28, Canaan Creative filed for an initial public offering (IPO) with the U.S. Securities and Exchange Commission (SEC) to raise $400 million, while planning to be listed on the Nasdaq under the ticker CAN.
Canaan reportedly filed a $200 million IPO draft request with the U.S. regulators in July, but the formal F-1 form was not made public until today.
If successful, Canaan, which is one of the three major Chinese crypto mining companies alongside Bitmain and Yibang International, could become the first China-based mining firm to be publicly traded in the U.S.
Bitmain already filed to list an IPO with the U.S. SEC in June 2019, following the expiration of its IPO listing application with the Hong Kong Stock Exchange in March.
According to the SEC filing, Canaan generated $394 million in revenue in 2018, with a net income of $8.3 million. However, the designer and manufacturer of Bitcoin mining machines has experienced a total comprehensive income loss of $45.8 million in 2019.
Canaan competitor opens the “world’s largest” mining farm
Canaan’s biggest competitor Bitmain opened what it claimed to be the world’s largest facility for Bitcoin (BTC) mining in Rockdale, Texas, which was completed thanks to a collaboration with the Rockdale Municipal Development District and Canadian technology firm DMG Blockchain Solutions.
Clinton Brown, Rockdale lead project manager for Bitmain, said that the facility’s launch is “significant to Bitmain’s global expansion plans” and that the state’s stable and efficient energy resources will be fundamental to supporting what he believes is set to be the inevitable scale of growth of the mining industry.
Crypto startup INX Limited has filed a prospectus with the SEC intending to conduct an IPO of 130 million native tokens to raise between $5 and $130 million.
Gibraltar-registered blockchain and cryptocurrency-focused startup INX Limited intends to raise between $5 million and $130 million through an initial public offering (IPO) per a document filed with the United States Security and Exchange Commission (SEC).
The filing reads that INX — which develops a regulated platform for cryptocurrency trading and an alternative trading system for security tokens — is planning to conduct an IPO of 130,000,000 INX Tokens. Those investors who want to participate in the IPO will have to contribute no less than $1,000.
A filing with the SEC for token sales of this scale rather than as an unregistered initial coin offering (ICO) comes amid increasing SEC prosecution of ICO’s deemed to be fraudulent.
$5 million or bust
INX wrote in the filing that it will not complete the sale of any INX tokens until it raises gross offering proceeds of $5 million within one year. Investors will have the option to pay for INX tokens with Bitcoin (BTC) or Ether (ETH), while BTC/USD and ETH/USD exchange rates will be determined by Brave New Coin’s Bitcoin Liquid Index (BLX) and Ethereum Liquid Index (ELX).
INX is ostensibly planning to establish a security token as well as two trading platforms operated by its wholly-owned subsidiaries. By the end of 2019, the company intends to receive money transmitter licenses or otherwise qualify to operate in eight U.S. states. The company also notes that in the future it plans to launch a platform for trading derivatives such as futures, options and swaps.
Industry’s mixed feelings on IPOs
In late July, Cointelegraph reported that Chinese Bitcoin mining giant Canaan Creative had filed a $200 million IPO request with U.S. regulators. The IPO filing reportedly means that Canaan is the first Chinese market participant to successfully take its case to the U.S. market.
As the Wall Street Journal reported in mid-June, traditional exchanges are holding off on Reg A+ IPOs following problematic offerings like that of purported cryptocurrency firm Longfin Corp. Earlier in June, the SEC filed fraud charges against Longfin, claiming that the firm fabricated 90% of its revenue and sold over 400,000 shares of Longfin that it did not have the funds to back in a scheme to secure its spot on the Nasdaq.
Hong Kong-based blockchain financial services firm Diginex Ltd. will go public through a reverse merger with investment holding company 8i Enterprises Acquisition Corp.
Hong Kong-based blockchain financial services firm Diginex Ltd. is scheduled to go public through a reverse merger with investment holding company 8i Enterprises Acquisition Corp. Subsequently, the firm will be listed on the Nasdaq, Bloomberg reported on July 10.
Diginex is reportedly going to close a reverse merger deal with 8i, which will reportedly amount to $276 million including debt. Diginex shareholders will reportedly get 20 million ordinary shares of 8i, valued at $10 per share.
According to Diginex’s CEO Richard Byworth the deal is set to ensure “broader market visibility” for the company. As such, Diginex will be “the first fully-diversified blockchain player on Nasdaq,” Byworth added.
Last fall, Diginex joined Global Digital Finance, the industry body driving acceleration and adoption of digital finance, as a founding member. Diginex thus joined other industry leaders, including crypto finance firm Circle, blockchain startup ConsenSys, crypto exchange Coinbase and enterprise blockchain software firm R3.
As reported in late June, Chinese cryptocurrency mining giant Bitmain was revisiting plans for an initial public offering. Bitmain was reportedly planning to file listing documents with the United States Security and Exchange Commission, potentially paving the way for a share sale to take place later this year.
A Bitmain IPO might be making a come back, as a crypto bull run heats up and as the company may potentially file with the SEC.
Toward the end of June 2019, news emerged that the mining giant Bitmain might be reviving its initial public offering (IPO) plans. As Bloomberg reports, the China-based cryptocurrency mining hardware producer is allegedly preparing to file documents with the United States Securities and Exchange Commission (SEC) to hold its share sale on U.S. soil.
Bitmain — being the largest player in the mining sector — first attempted to go public in the second half of 2018, but soon was heavily damaged by the intensifying crypto bear market. Now that the industry has entered a much more optimistic, bullish phase, the company might be looking to recoup its losses.
The world’s most powerful crypto mining giant: A brief introduction to Bitmain
Bitmain was founded in Beijing in 2013 by Jihan Wu and Micree Zhan Ketuan. Prior to starting the joint venture, Wu was a private equity fund manager with a degree in economics and psychology from Peking University, while Zhan, a graduate of the Chinese Academy of Sciences, was managing a television-streaming startup.
After learning about Bitcoin (BTC) in early 2011, Wu allegedly invested all of his life savings into the cryptocurrency. Following the Bitcoin price spike in 2013, he allegedly decided not only to trade the digital asset, but to find an efficient way to generate it. Together, Wu and Zhan began developing an ASIC chip — a machine that would allow mining Bitcoin at maximum efficiency. In November 2013, Bitmain’s first mining rig — the Antminer S1 — was presented, and the sales took off.
Due to the unstable nature of its business, which largely depends on cryptocurrency prices, Bitmain has been through some difficult periods. According to Wu, the company experienced its first rough patch close to the end of 2014, when the crypto market collapsed following the infamous Mt.Gox crash. At some point the next year, BTC’s price began recovering, and the overall situation stabilized.
Consequently, when the 2017 crypto bull run broke out, Wu and Zhan’s venture became largely lucrative. That year alone, Bitmain booked $2.5 billion in revenue, as Wu told Bloomberg. The first half of 2018 turned out to be even more profitable: According to the company’s prospectus, its revenue was set at $2.8 billion by the end of June 2018. A different report issued by investment research company Bernstein cited even larger figures, suggesting that Bitmain made between $3 billion and $4 billion in operating profit in 2017 and even outraced U.S. technology corporation Nvidia, which made about $3 billion during the same period.
In May 2018, following the news about increased scrutiny on crypto mining operations in China,
Bitmain announced its expansion into artificial intelligence (AI), in which it planned to compete against Nvidia, Intel and AMD using its existing chip designs to power AI systems and software. “As a China company,” said Wu, “we have to be prepared.” He added that Bitmain plans to start earning as much as 40% of its revenue from AI chips within five years.
As of February 2018, before the so-called “crypto winter” came, sales of Bitmain’s mining chips and circuits reportedly accounted for around 70% to 80% of the whole market, while the company’s mining pools — AntPool and BTC.com — represented roughly 40% of the market share. However, once the crypto bear market intensified in the second half of 2018, Bitmain’s revenue was endangered once again. As of January 2019, the company’s mining pools had contributed to just 23% of the total hashing power, suggesting that Bitmain experienced major losses.
Further, according to a BitMEX research report released in August last year, Bitmain had been selling a substantial share of its mining units at a loss throughout 2018. The paper suggested that it was a deliberate strategy “to squeeze out their [Bitmain’s] competition by causing them to experience lower sales and therefore financial difficulties” — indeed, at the time the paper was released, the price of Bitcoin was hovering at around $7,000, which was still above the break-even cost of Bitcoin mining.
However, as previously noted by Cointelegraph, when the bear market set off in November 2018, and the price of bitcoin fell below the breakeven cost of mining of $6,900, Bitmain should have started to experience significant financial difficulties. Indeed, within the several months that followed, the Chinese company closed offices and suspended operation in a number of countries, including the U.S., the Netherlands, and Israel. Additionally, Bitmain reportedly announced internal job cuts.
“The bear market at the end of 2018 brought both challenges and opportunities that Bitmain will work hard at addressing in 2019. In fact, we have already started with competitive products that meet the needs of our customers.”
Bitmain IPO plans: Old and new
In the most basic sense, an IPO is a more traditional and regulatory-friendly way for a company to seek investments from a broader audience in the public market. In June 2018, reports emerged that Wu was planning to conduct an IPO overseas. Wu was reportedly looking for a market with U.S. dollar denominated shares — like Hong Kong — as it would allow early backers to cash in funds.
Next month, BitMEX Research analyzed the allegedly leaked data on the potential Bitmain IPO and declared that the Chinese mining giant had conducted a pre-IPO round that reportedly raised around $14 billion, suggesting that no less than $20 billion could be raised during the IPO stage, which would make Bitmain the largest public crypto company by far.
In September 2018, Bitmain officially filed for an IPO on the Hong Kong Stock Exchange (HKEX). However, the crypto mining giant’s plans to go public soon turned uncertain, as companies that were previously listed as Bitmain investors began denying their involvement.
Hong Kong-based newspaper SCMP soon added fuel to the fire, reporting that the HKEX is reluctant to allow Bitmain to conduct an offering in the city. According to the publication’s anonymous sources, the regulator thought it was “premature for any cryptocurrency trading platform — or business associated with the industry — to raise funds through an IPO in Hong Kong before the proper regulatory framework is in place.”
In March 2019, Bitmain’s filing with HKEX was lapsed — which came as no surprise to some, given that HKEX had previously treated the IPO application of Canaan, Bitmain’s competition on the mining market that also had plans to go public in Hong Kong, in the same manner.
While neither the stock exchange nor local regulators have ever spoke on the matter publicly (apart from HKEX’s statement that it does not “comment on rumors,”) Bitmain eventually confirmed that its filing had reached its six-month expiration date. The company’s press release read:
“We do recognize that despite the huge potential of the cryptocurrency and blockchain industry, it remains a relatively young industry which is proving its value. We hope regulatory authorities, media, and the general public can be more inclusive to this young industry.”
“We will restart the listing application work at an appropriate time in the future,” the announcement continued — and, as per Bloomberg, the Bitcoin mining giant is already preparing to file listing documents with the SEC as soon as next month. Notably, the SEC has accepted the idea of a cryptocurrency-related IPO in the past. “If you want to do any IPO with a token, come see us,” SEC Chairman Jay Clayton declared last year.
According to Bloomberg’s undisclosed sources, Bitmain “is considering reducing its earlier fundraising target due to the increased volatility in cryptocurrency prices.” The new goal is reportedly set at a much more modest $300-500 million, though the amount has not been finalized.
Experts attribute the alleged reactivation of Bitmain’s IPO plans to the growing market, considering that Bitcoin alone has gained around 300% since the 2018 lows. “It’s definitely due to the reviving market,” Mark D’Aria, CEO of Bitpro Consulting, told Cointelegraph. He went on to elaborate:
“Their [Bitmain’s] last IPO attempt was a bit late to the party, and this looks like a clear attempt to start that ball rolling and ride the wave before it crests again. Their initial target was too optimistic in reality, although to be fair, everything was more than a little optimistic back then. Also, given how much crypto there is on their balance sheets (quite a bit of which was BCH), it’s also likely a reflection of how the underlying assets of the company simply aren’t what they used to be on paper.”
TradeBlock’s director of digital currency research, John Todaro, has confirmed to Cointelegraph that Bitcoin mining’s gross profit margins — and, consequently, the mining market at large — has recovered “quite substantially” from late 2018 levels. That, in Todaro’s view, could lead to “renewed investor interest” in a Bitmain IPO.
“Additionally, Bitmain’s bitcoin mining market share (as a percent of total network hash rate) has increased recently, possibly, in anticipation for an IPO filing,” the researcher added. As a result, Todaro argues, the Chinese giant might be eyeing a much more realistic share sale:
“Bitmain would likely look to offer less equity in this round, but also would likely look for a lower valuation than last year given Bitmain’s mining revenue was expected to continue to decline as bitcoin market prices fell through 2018 and remained dampened in early 2019. Additionally, Bitmain’s bitcoin mining market share today remains lower than when the company looked to go public in 2018.”
But why would Bitmain need to go public in the first place? Both D’Aria and Todaro suggest that the reasons are quite prosaic: The mining outfit could simply be looking to boost profits. The BitPro CEO told Cointelegraph:
“At face value they could use the funds raised to fuel R&D and operations, so they’re no different than any other tech company in that regard. It also gives current ownership and investors a way to cash in or out on a liquid market, but again that would be no different than the intent behind any other IPO. It’s always easy to demonize Bitmain and assume there is some nefarious plot behind their behavior, but in this case it just looks like they’re doing what companies do, for the same reasons that other companies do it.”
Todaro somewhat echoed the viewpoint, but specified that the end goal could be anything:
“If the company goes public, they would look to use the capital to drive increased revenues, with the intention of over time boosting profitability. It remains unclear however, as to what the exact intended use of the capital would be for.”
In theory, funds raised could also be used to mitigate some of the losses Bitmain experienced while the market was going downhill, namely a 200,000 unit-strong mining facility in Rockdale, Texas. The experts are somewhat skeptical about Bitmain’s aforementioned expansion into the field of AI, however. D’Aria also told Cointelegraph about the outfit’s diversification plans:
“I’m somewhat suspicious that their AI plans are little more than wishful thinking to placate potential investors because nothing they’ve done previously shows they have competence at building anything but ASIC miners. I’m certain nvidia isn’t shaking in their boots at the thought of Bitmain entering the AI market. I personally think it would be foolish for Bitmain to take their eye entirely off the ball. But like any good company they’re always looking to pivot and/or expand into related markets.”
Torado expressed a similar view, suggesting that crypto mining-related crackdowns in China are more likely to drive Bitmain into other markets rather than make it focus on alternative sources of revenue:
“Bitmain may look to increase its exposure to AI, but its core business will likely remain around hardware sales and proprietary mining. In regards to recent developments around China cracking down on mining activity, Bitmain retains a global footprint, and may look to diversify its mining operations outside of China, ideally in other low electricity cost regions.”
Nevertheless, Bitmain seems to be steadily recovering on both the AI and cryptocurrency mining frontiers. The company has recently reported on the AI side of its business, announcing that it had signed cooperation agreements with the Fuzhou Municipal Government of Fujian Province, China Mobile Hangzhou Research and Development Center and China Unicom Network Technology Research Institute. Additionally, Bitmain declared it was “rolling out different generations of neural processors, which are fast finding wide acceptance among established tech companies, such as cloud gaming provider Ubitus.”
Nevertheless, Bitmain’s main focus seems to remain on its hardware solutions: The company has been unveiling new, allegedly more energy-efficient products, such as the Antminer Z11. Moreover, according to reports from China-based media, Bitmain hopes that the next Bitcoin halving in 2020 (which happens about every four years and is when the reward for mining Bitcoin is cut in half to cap the cryptocurrency’s supply) will drive the demand for its yet-to-be-launched 7nm-chip miners.
Cointelegraph has requested Bitmain to confirm or deny the reported IPO plans, but has yet to hear back from the company.
While the company was hoping to raise $3 billion from its planned Hong Kong IPO, the Bloomberg report suggested that this fundraising target will be reduced to between $300 million and $500 million if it lists in the U.S.
It comes as bitcoin (BTC) prices exceeded $9,800 — with this figure often being used as a barometer for how the crypto industry is faring.
At the end of March, Bitmain said it remained committed to realizing the “huge potential of the cryptocurrency and blockchain industry” even though its six-month window for filing an IPO in Hong Kong had lapsed. The company also claimed it has become “more transparent and standardized” as a result.
In February, a document suggested that Bitmain could have amassed losses of $500 million in the third quarter of 2018, indicating that last year’s bear market had taken a toll on the mining sector.
Earlier this month, it was reported that a new crypto services venture by ex-Bitmain CEO Jihan Wu was close to launch.
Traditional exchanges are holding off on Reg A+ initial public offerings (IPOs) following the case of “crypto” firm Longfin Corp. when it allegedly organized a fraudulent Reg A+ IPO.
Traditional exchanges are holding off on Reg A+ initial public offerings (IPOs) following problematic offerings like that of purported cryptocurrency firm Longfin Corp., the Wall Street Journal (WSJ) reported on June 10.
Earlier in June, the United States Securities and Exchange Commission’s (SEC) filed fraud charges against Longfin. The SEC claimed that Longfin fabricated 90% of its revenue and sold over 400,000 shares of Longfin that it did not have the funds to back in a scheme to secure its spot on the Nasdaq.
The complaint also reportedly stated that the SEC granted Longfin’s Reg A+ offering based on the supposition that the company was principally managed and run in the U.S., when the company’s operations, assets and management were in fact all offshore.
Now, Nasdaq Inc. and the New York Stock Exchange (NYSE) are reportedly shying away from IPOs conducted by companies using Reg A+, a provision that allows firms to have lower accounting and disclosure standards than conventional offerings.
Moreover, Nasdaq has submitted a proposal to the SEC for a rule change that would preclude companies from listing on the exchange under Reg A+ unless they have been in business for no less than two years.
Speaking to WSJ, David Feldman, a partner with law firm Duane Morris LLP, said that a NYSE official told him earlier this year, that the exchange was not interested in new Reg A+ listings at the time.
A Nasdaq spokesman told WSJ that “we continuously examine our listing standards for all companies. We identified a need to enhance the rules in this area and align with our commitment to investor protection.”
According to WSJ, between 2015 and 2018, companies raised around $1.5 billion in 157 offerings under Reg A+, while only a small part of those deals were carried on exchanges. In April of this year, decentralized computing network Blockstack applied with the SEC to launch a $50 million token sale under the Reg A+ framework. If approved, the offering would involve the sale of 295 million Stacks tokens.
That same month, the SEC published the “Framework for ‘Investment Contract’ Analysis of Digital Assets” which aims to help market participants ascertain whether or not a digital asset is deemed to be an investment contract, and therefore a security.
SEC-approved LTSE stock exchange could link crypto firms and the capital of traditional investors.
One of the most significant introductions that blockchain has made available in recent years is adding new tools through which companies can raise capital. The technology has made it possible to raise funds for a project from investors of just about any pocket size through initial coin offerings (ICOs) as well as security token offerings (STOs).
Typically, these investors put in their money not just in return for a big payday, but they’re usually believers in the project as well. These investors form the community around which new projects are built. This is the concept that popularized the colloquial term “hodl” in the crypto world. This is usually not the case in the traditional investment sphere.
Long-Term Stock Exchange (LTSE), which recently got approval from the United States Securities and Exchange Commission (SEC) to launch a new stock exchange, could soon make it possible for companies to also raise funds through traditional means. This means attracting the sort of committed, in-for-the-long-haul investors that we’ve seen in the crypto space — but through widely acceptable investment tools.
This could well prove to be a revelation for the crypto industry, since many companies operating in the space possess the characteristics that LTSE is after: early stage, sizeable long-term growth potential.
An LTSE spokesperson telling Cointelegraph that “the exchange will be available to companies in every industry” only supports that notion. The company, however, has not provided any further details on whether it expects to see a lot of interest from the crypto/blockchain industry. However, the fact that fintech-oriented investment funds like the Founders Fund and Andreessen Horowitz are backing the new stock exchange, potentially only adding to the excitement.
Should the crypto industry take a closer look?
Blockchain-based capital raising has developed from a unregulated model, through ICOs to the somewhat regulated model of STOs. A few firms — including U.S. online retailer Overstock.com-owned tZERO, Polymath, Securrency, Securitize and a few others — are building the infrastructure to allow companies to take advantage of the regulatory-compliant STO model to raise funds from committed investors that the blockchain world has been able to attract. The security tokens market, given its regulatory-compliant structure, appears to be in direct competition with LTSE.
However, the security tokens market has reportedly failed to live up to the expectations so far, partly because the investors who could bring liquidity to the market haven’t seen enough compelling reasons to take on the technological, regulatory and market risks associated with this new class of assets. For instance, liquidity at the security tokens exchange tZero has been reported low, and the company was reported making a loss.
LTSE, building on an already mature stock market, could become a viable alternative for both for blockchain-related and nonblockchain companies that may have been looking to leverage the security token market to raise funds from patient investors.
What problem is LTSE trying to solve?
For example, Jeff Bezos — the wealthiest man on earth, whose fortune is worth in excess of $100 billion — reportedly invested $3 million in Uber in 2011. The stake he bought then is reportedly worth about $400 million, as of Uber’s initial public offering (IPO) on May 10, 2019. If it were possible for a middle-income investor to invest $10,000 in the ride-hailing company at the same time as Bezos, their stake could now be over $1.3 million. But a stack of regulations makes it difficult for the average middle-income investor to participate at that level.
Early stage Coinbase investor Garry Tan alluded to this issue in a tweet:
Companies do go public later and that is a problem since only private investors have access to the 10X to 100X appreciation in sub-$B valuation high growth
LTSE aims to bridge this gap by encouraging early stage companies with long-term growth potential go public early. The hypothesis is that, if companies go public early enough, everybody can share in the newly created wealth.
The new stock exchange believes that companies delay IPOs mainly because of the market’s short-term thinking, which compels companies to focus on delivering stellar financial results from quarter to quarter. This, according to LTSE CEO Eric Ries, has led to a decline in innovation.
A recent survey of some hedge funds that invested in the popular ride-sharing company Lyft at IPO is an example of the near-term mindedness of the stock market. The survey showed that the investors didn’t believe in Lyft’s long-term prospects. Lyft went public via an IPO on March 29.
Vincent Ning, director of research and operations at Titan Invest, which conducted a survey on hedge funds revealed to the technology news publication Recode that some short-term oriented funds could be out of Lyft’s stock as fast as by the end of the first day of trading.
To potentially force market participants to adopt a longer-term view, LTSE is building a structure that would encourage growing companies to attract and reward long-term, patient capital in the public market. The stock exchange believes its own approach will help build more sustainable companies.
How does LTSE plan to encourage long-termism?
The company aims to mandate companies that list on its exchange to adopt a set of corporate governance principles that foster long-term thinking — both for the company and for the shareholders. It has developed a set of listing standards toward that vision.
The exchange will encourage listed companies to focus on publishing key indicators of future growth and limit emphasis on quarterly predictions. Another part of the principles is to encourage LTSE-listed companies to link executive pay and bonuses to projected performance over the coming decade, as opposed to the typical Wall Street status quo that links pay and bonuses to short-term achievements.
The board of LTSE-listed companies may also have set up a committee that will oversee and report on the company’s strategic plans for long-term growth. The exchange says it will have a structure that allows investors to keep their stake for longer in order to generate more voting rights. This could shield companies from investors with a short-term focus actively pursuing their agendas.
Existing exchanges including the New York Stock Exchange (NYSE) and Nasdaq have their own robust listing rules that contain corporate governance requirements in the same areas — voting rights, board composition — just like LTSE. They, however, do not appear to impose the long-term driven requirements that LTSE is proposing.
Will LTSE impact the crypto fundraising market?
One significant downside of LTSE is perhaps that its attractiveness may be limited to just U.S. companies, since the exchange is basing its operations in the U.S. While foreign companies are able to list on the U.S. exchange, smaller companies that turn to the crypto market for funds may be overwhelmed by the listing requirements.
In such, the STO market, with its global reach, could still remain the best opportunity the small, non-U.S. companies have to gain access to long-term growth capital from public investors.
There’s also the possibility that the success of LTSE will validate the concept of giving companies access to public funds when they are starting out. A ripple effect could then lead to the growth of the STO market as well.
Moreover, since LTSE says it’s open to working with companies in every industry, coupled with the fact that some of its backers are pro-crypto, there could be a slew of opportunities for mutual growth.
Having a stock exchange on which crypto companies could list may level out the playing field between the crypto and other industries. This can also provide additional ammunition in the ongoing discussions on how to get traditional market players involved in the crypto sphere. So far, firms such as Bakkt and ErisX are leading the way — and if crypto firms obtain listings on LTSE, this will further promote the cause.