A three pronged strategy has been adopted by several cryptocurrency exchanges so that they increase the chances of being recognised as legitimate mainstream financial institutions and thereby more closer to the mainstream markets.
The strategies include presenting themselves to be part of the traditional financial services world they once spurned, seeking to raise funds and by purchasing listed companies.
One recent example is that of U.S. crypto broker-dealer Voyager Digital which bought controlling shares of mineral exploration firm UC Resources and thereby got listed at Toronto’s Venture Exchange on February 11, which has been alleged to be a “backdoor” listing.
These listing and purchases, which are also known as reverse mergers, enable companies to offer shares opt the public without having to go through the rigorous process of regulatory scrutiny which it would other s\wise have had to in case of an initial public offering (IPO).
“Many (cryptocurrency) exchanges have put a lot of strategic effort into trying to legitimize their operations and their reputations, and for some there’s an assumption that having some exposure to the traditional public market will help,” said Fei Ding’an, managing partner at Ledger Capital, a digital asset investment firm.
The only definitive framework for governing of digital assets and the platforms where they are traded have been drawn up by Japan’s Financial Services Agency (FSA).
A 60.5 per cent stake in LEAP Holdings, a Hong Kong-listed construction firm, for HK$484 million ($61.69 million)m was bought by OKC Holdings, a company controlled by Star Xu, the founder of crypto-exchange OK Coin, in January. Soon after this, plan for a U.S. listing through the process of buying out of Blockchain Industries was announced by the owner of the Korean crypto exchange Bithumb.
A controlling stake in Hong Kong-listed marketing firm Branding China was bought last year by investors, including the co-founders of crypto-exchange software producer ANX International. One the other hand, a 72 per cent stake in Hong Kong-listed power electrical company Pantronics Holdings was bought by Huobi, a Singapore based exchange.
Its listed shares could help fund growth, said Voyager.
“Being a public company enables Voyager to operate with the transparency that the crypto market deserves from its institutions,” Voyager CEO Steve Ehrlich told the media in an emailed statement.
Even though currently, the entities of ANX International and the BC Group are separate, soon after the handing over of ownership, new ventures including a digital asset trading and exchange platform was launched by the listed unit.
Trading in the public exchange gave clients “additional confidence in knowing we are a credible company and here for the long game,” a spokesman for BC Group told the media.
There can be greater mainstream acceptance for the cryptocurrency industry because of the deals, say crypto experts.
Fears of price volatility and possible uses for laundering money are the two major factors that have forced the cryptocurrencies out of the mainstream finance world. Additionally, there have been huge hacks and infrastructure failures that have added to the uncertainty and volatility of the industry.
(Adapted from Reuters.com)