In anticipation that certain private digital asset companies may go public in the upcoming months, cryptocurrency funds and individual investors have started grabbing up shares of these companies.
According to several trading platforms, equity in companies including blockchain forensics service Chainalysis, cryptocurrency exchange Kraken, and stablecoin issuer Circle Internet Financial have seen increased trading activity recently, with many of the steep discounts from a year ago having decreased. Forge Global, a secondary market platform, reports that in the first half of 2024, demand for cryptocurrencies on the buy-side was 126% greater than in the first half of 2023 and 28% higher than in the second half of last year.
Demand has driven up the price of “secondaries,” which are shares or tokens owned by early investors, current or former employees, etc. According to Forge’s platform activity, implied prices for equities in cryptocurrency exchange Kraken are up 77% year to date. Meanwhile, crypto business Ripple has experienced a 13% gain, while blockchain forensics provider Chainalysis has seen a 17% increase.
According to Andrew Saeta, co-head of institutional sales at Forge, there is a good deal of demand from private investors. There has undoubtedly been an uptick on the institutional side. According to him, the market is at its strongest point in a long time.
The first half of the cryptocurrency market saw a sharp increase in interest in Bitcoin, which reached record highs in March due to the introduction of US exchange-traded funds that invested directly in the largest cryptocurrency globally and what seems to be a recent regulatory reversal on Ethereum. The topic of crypto policy has even made its way into the forthcoming presidential campaign. The 36% increase in value of Coinbase Global Inc. this year has increased the appeal of comparable private companies.
Several secondaries platforms and entities that are purchasing secondary tokens and stock claim that despite the growing interest, demand is still below 2021 levels.
The CEO of Stix, a marketplace with over 50 tokens, Taran Sabharwal, stated that while valuations have increased, demand hasn’t increased as much.
In 2022, the collapse of FTX, the cryptocurrency exchange owned by Sam Bankman-Fried, completely destroyed the secondary market. Demand decreased even further when cryptocurrency prices dropped and the market entered a crypto winter.
Since FTX, there has been less activity in the blockchain market; in fact, there has nearly been a buyers strike as a result of these institutional investors’ fear, according to Brian Dixon, CEO of Off The Chain Capital, which has been purchasing secondaries. We are now beginning to notice increased activity in a few of the names. However, He do believes that more institutional investors will attempt to purchase more of these secondary opportunities as the markets develop and the revenues of many blockchain companies rise.
Dixon stated that as of the end of May, secondaries accounted for 25% of his $370 million fund.
About a year ago, investor Haun Ventures purchased coin security providers Fireblocks and Chainalysis at steep discounts. However, many secondary markets are still selling at a 40% to 70% markdown from their most recent round.
The fundamentals have improved dramatically and many of the major crypto companies have demonstrated great operating performance over the previous six months, so now is a good time to reevaluate secondary prospects, according to Stan Miroshnik, founder of TenSquared Capital. Many of these companies are cash-positive, have survived the downturn in the market, and have emerged lean and focused. Many of them still have substantial financial runway from previous rounds.
According to IPO analyst Renaissance Capital, if cryptocurrency values keep growing, the next 18 months may see the largest wave of cryptocurrency-related IPOs ever. According to the study, up to fifteen companies might go public. According to the report, it is previously revealed that Kraken is in discussions for a possible pre-IPO round. Furthermore, cryptocurrency has emerged as a political issue in the US presidential election of this year, which may result in more favorable regulatory conditions for the sector moving forward.
According to Saeta of Forge, a lot of individuals are enthusiastic about the future. particularly because there will be modifications from a regulatory standpoint.
