Cryptocurrency exchanges have long wanted to be mainstream, now a growing number of them are moving closer to that by acquiring a public company in order to bypass the lengthy and complex process of going public themselves, according to a report. This process is known as a reverse merger and allows companies to offer shares to the public without the regulatory scrutiny of a full initial public offering (IPO).
Being publicly traded gives clients additional confidence and crypto experts are saying that these deals could help the industry gain greater mainstream acceptance.
“Many 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 Ding’an Fei, a founding partner at Ledger Capital, a digital asset investment firm.
Reverse Takeovers Provide An Opportunity To Invest In A Public Crypto Trading Company
Exchanges could find that the rules differ across the world. Japan’s Financial Services Agency (FSA) is the only major national regulator to have drawn up a decisive plan to govern digital assets and the platforms where they are traded.
An anonymous source close to the Securities and Futures Commission in Hong Kong has said that it is “possible a crypto exchange could incubate a new crypto business inside a Hong Kong-listed company, maintain the listed company’s existing operations, and not be treated as a new IPO, but it is a very difficult tightrope to walk”.
US crypto broker, Voyager Digital achieved a backdoor listing on Toronto’s Venture Exchange recently after it bought control of mineral exploration firm, UC Resources. According to the company, the choice made perfect sense. It offered Voyager the opportunity to “bring transparency to our business, maturity to the crypto market and to provide the world with an opportunity to invest in a public crypto trading company through the traditional market”.
Another example is OKC Holdings Corp, which is the parent company of OKCoin and OKEx the world’s second-largest cryptocurrency exchange by trading volume, bought a controlling share in the construction firm, Leap Holdings Group. This gave them a 60.5% share in the Hong Kong-based company.
Reverse takeovers don’t always run smoothly, however, sometimes the new parent company can find itself facing unforeseen liabilities. Crypto exchanges would do well to keep this in mind, before attempting to sneak in the back door.
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