Falling Crypto Stocks Could Dampen IPO and Deal Market

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“Being a public company seems like a total blast.”

Barry Silbert, chief executive of crypto powerhouse DCG, was of course sarcastic in his January 21 tweet; this has been a brutal time for publicly traded companies in the digital asset market amid the continued rout of liquid tokens.

Shares of Robinhood, the popular brokerage app company, are down 29.61% since the start of 2021. Since hitting all-time highs above $80 shortly after its public market debut , they have decreased by more than 80%.

Meanwhile, Coinbase shares are down 23.5% year-to-date and ended Friday’s trade down $13.38.

Friday’s session was even worse for MicroStrategy, which dove on reports that the Securities and Exchange Commission rejected the company’s approach to accounting for bitcoin in financial disclosures. It is down more than 71% from its peak in February 2021.

Bitcoin, meanwhile, fell around 48.7% from its highs of nearly $69,000 per coin to $35,369. It is down about 25% since the start of the year.

The US Federal Reserve’s intention to raise interest rates as part of a strategy to fight rising inflation has spilled over into markets, steering investors away from growth stocks and riskier assets that benefited from the Fed’s easy money policies. The Nasdaq Composite is down more than 12% since the start of the year.

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There is a stark dichotomy between the state of the public equity market for crypto companies and the private market, where the number of unicorns has grown at a breakneck pace.

At the same time, market venture capital funds have raised billions of dollars in new funding. FTX announced its own $2 billion fund earlier this month, as did venture capital firms Paradigm and a16z.

Venture capital sitting on the sidelines could support valuations as public companies feel the pressure, according to David Mercer, CEO of LMAX.

“Everyone is looking for the next Skype,” he told The Block. “If you could write a bunch of million-dollar checks, you don’t need that to get by: it’s throwing spaghetti against the wall.”

As for public crypto companies, Mercer said that in volatile markets, companies are “oversold.”

The view has emerged that bearish action in crypto stocks – juxtaposed with the large amounts of liquidity in private markets – could dampen ambitions to go public among other companies in the space. This raises an important question: why go public and risk underperforming, when it is easy for a large crypto company to raise private capital.

“Crypto equity and market trends are definitely material to the IPO aspirations of crypto-based companies,” said Eric Risley, managing partner at M&A advisory firm Architect. Partners.

“It is certainly safe to say that these current market conditions are not conducive to launching a crypto company IPO round at this time,” Risley added. “Anyone in this position would definitely watch how things develop over the next few weeks or maybe a month before making a final decision on go/no-go.”

That would be a change from 2021, which saw companies like Bakkt, Coinbase, and Robinhood tap public markets. Elsewhere, companies like Circle and crypto exchange Bullish have announced their own plans to go public through a SPAC.

The market rout could also halt large, short-term merger transactions. The crypto market has seen merger and acquisition activity increase in 2021 with merger and acquisition activity up 131%, according to data from The Block Research.

Still, market participants expect the year to be active for mergers and acquisitions even as prices continue to fall, thanks in part to large cash balances at private crypto companies.

“I still think they will be active, but M&A prices could go down,” one expert said.

© 2021 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended for use as legal, tax, investment, financial or other advice.

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