Last week, at least two crypto-related enterprises, a Silicon Valley stock and cryptocurrency trading platform Robinhood and Singapore-based crypto exchange Huobi, moved closer to going public by holding an initial public offering (IPO).

The ‘old school’ way to collect investments might seem especially attractive in the context of mass adoption trends and a declining ICO market, which now sees its hardest slump in 16 months. But what is an IPO exactly, and which crypto-related companies have chosen to go public?

What’s an IPO?

For those who know what an Initial Coin Offering (ICO) is, the concept of initial public offering (IPO) — a more traditional way for a company to seek investments from broader audience in the public market — should seem familiar. The main difference between the two is that an ICO gives out tokens — whose use case is based on the company’s performance — while an IPO gives investors stock ownership in a company.

An IPO, or stock market launch, is when a company sells its shares to institutional investors and retail (individual) investors. This process is significantly more regulated compared to the ICO market: An IPO has to be supervised by regulators — like the United States Securities and Exchange Commission (SEC) — and be underwritten by one or more investment banks. The so-called ‘underwriters’ manage the process, negotiate with the SEC and help its client get listed on a stock exchange. In the end, they collect commision on the raised funds.

Once the company gets listed on a stock exchange, say the NASDAQ in New York, it goes public — i.e., its shares are traded freely in the open market. Importantly, the company is now bound to comply with the watchdogs and keep its investors in the loop by publishing information regarding internal operations.

Holding a successful IPO includes a number of potential benefits, like attracting capital from a larger amount of investors, diversifying equity base and increasing the overall exposure and prestige of the company. Consequently, there are disadvantages as well, some of which include risks which include not enough capital being raised, legal costs and the requirement to disclose sensitive financial information.

Normally, ICOs allow investors to pay with crypto — usually Ethereum (ETH) — hence remaining somewhat anonymous, while IPO investors are limited to fiat money. However, in August, marijuana culture media group High Times Holding Corp. announced it would accept Bitcoin (BTC) and ETH in its upcoming IPO, making it the “first traditional stock offering ever to accept investments” in digital currencies. Despite the SEC later claiming that High Times will not be supporting cryptocurrencies as payment for shares, the media representative Jon Cappetta has since confirmed that the company is, in fact, technically accepting BTC and ETH as payment options, although now the digital money will be converted into U.S. dollar by a third-party company to meet the SEC’s requirements.

Alternatives to IPOs: Shortcuts to the public

Beside the traditional IPOs described in the section above, there are some alternative ways for a company to go public — namely the reverse IPO and Dutch IPO.

A reverse IPO, or a reverse takeover, is a way to bypass at least some of bureaucratic scrutiny involved in the process and go public with less hassle. To conduct a reverse IPO, a private company should buy enough shares to control a publicly traded company (also referred to as the shell). After that, the shareholders of the private company merge the shell company with their enterprise and exchange their shares for a majority of the shares of the public company.

At that point, they have gone public without having to go through the aforementioned process of a traditional IPO. In countries like the U.S., such a company will still have to disclose the information regarding the deal to the SEC, however “there are no registration requirements under the Securities Act of 1933 as there would be for an IPO,” as the regulator mentions on its website. Moreover, if the reverse-merger company’s securities are listed and traded on an exchange, the listed company must still meet the exchange’s initial listing standards to qualify for listing — however, the overall process is still much cheaper and faster in the end.

Dutch IPOs, in turn, are more similar to ICOs — they represent a way to raise money directly from the public instead of holding a conventional IPO, where investment banks would take their cut in the process.

During a Dutch IPO, as per Investopedia, potential investors submit their bids for the number of shares they want to buy and the price they are willing to pay for them. Once the bids are entered, “the allotted placement is assigned to the bidders from the highest bids down, until all of the allotted shares are assigned.” The price is based on the last successful bid. Perhaps the largest company at least remotely related to crypto that has gone public through a Dutch IPO is Patrick Byrne’s Overstock.com.

Australia and the U.K.: First crypto IPOs

Although the majority of crypto firms still rely on ICOs — as Block.one’s June offering showed — investors are still ready to pump record-breaking amounts of money into an unreleased product, and some of the players have already gone public through IPOs.

An apparent first was almost secured by an Australian-based Bitcoin mining firm Bitcoin Group Ltd., who was set to become the world’s first crypto firm to be traded on a stock exchange. It submitted its first prospectus to the Australian Stock Exchange (ASX) back in 2015, and after a series of delays caused by the Australian Securities and Investment Commission (ASIC) interference, raised a modest 5.9 million Australian dollars during its IPO, severely missing its AU$20 million goal. The ASX then raised concerns regarding Bitcoin Group’s capital, and the company chose to withdraw from the stock market.

Since then, the ASX has seen at least two more successful crypto-related applications: A fintech startup Kyckr, which uses blockchain for its corporate identity management platform, was listed on the stock exchange in 2016 after raising $5.2 million; and Identitii, a blockchain-based software outfit that helps financial institutions exchange payment information, which was listed on the ASX after its $11 million IPO in August 2018. While it is yet unclear how Identitii will perform, Kyckr shares are now being traded at 12 cents, despite being initially sold for 20 cents.

Another country that has hosted crypto-related IPOs is the United Kingdom. Back in December 2015, Coinsilium, a firm which provides advisory services to blockchain projects, was listed on the ISDX Growth Market in London, becoming the world’s first blockchain company to float, according to Financial Times. Coinsilium issued 10,000,000 ordinary shares at approximately 13 cents per share and raised one million pounds ($1,3 mln) in gross proceeds, becoming “the world's first IPO of a blockchain technology company,” as Cameron Parry, Coinsilium's executive chairman, commented on the news. The company's shares trade at approximately 9 cents as of press time.

Moreover, in August 2018, mining firm Argo Blockchain PLC, which offers customers the ability to mine four cryptocurrencies — Bitcoin Gold (BTG), Ethereum (ETH), Ethereum Classic (ETC) and Zcash — became the first crypto company to join the London Stock Exchange (LSE), raising around $32 million for a total valuation of about $61 million. It sold a total of 156,250,000 ordinary shares that represented 53.2 percent of the firm’s issued share capital at around 21 cents per share. Argo’s stock shares are being sold for approximately 23 cents, as of press time.

Hong Kong: Main frontier for China’s biggest mining players

The biggest player to join the IPO race might be Bitmain, an extremely successful Chinese mining company with around $3.5 billion in profit generated in 2017 — arguably one of the most influential businesses in the industry. Specifically, Bitmain develops high-grade Bitcoin mining hardware and has huge mining capabilities.

In June, media started to report that Jihan Wu, the co-CEO of Bitmain, was planning to conduct an overseas IPO in a market with U.S. dollar denominated shares — like Hong Kong — as it would allow early backers to cash in funds.

Later in July, a research unit for crypto exchange BitMEX analyzed leaked data on Bitmain’s potential IPO and stated that the mining giant had conducted a pre-IPO round that allegedly raised around $14 billion, leading them to believe that it could raise no less than $20 billion at the IPO stage.

Nevertheless, as Cointelegraph reported earlier, there had been a lot of rumors and uncertainty around Bitmain’s upcoming IPO. For instance, though DST Global and Japan’s SoftBank were initially listed among possible investors, they have since denied their involvement. Nevertheless, if Bitmain IPO ever does happen, it’s likely to affect the crypto industry simply due to the scale of the operation.

Still, Bitmain might be outraced by some of its compatriots: Both Canaan Creative, China’s second-largest BTC mining hardware manufacturer, and its competitor Ebang Communication have announced their plans to conduct IPOs on the Hong Kong Stock Exchange (HKEx), which is yet to list crypto-related stocks. Interestingly, both Canaan’s and Ebang’s estimated goal is $1 billion, which is still modest compared to Bitmain’s whooping $20 billion.

Significantly, to accommodate the rising amount of fintech-based IPOs, the HKEx announced in August a new blockchain-powered private market. Called the HKEx Private Market, it focuses on helping smaller startups get their financing through pre-IPOs before entering the bigger market and facing the regulators’ supervision. It is set to be launched by the end of the year, according to the stock exchange’s chief executive Charles Li:

“We plan to launch a completely new venture called the HKEX Private Market in 2018 to provide early stage companies and their investors with a share registration and transfer platform based on blockchain technology so they can conduct pre-IPO financing and other activities on an off-exchange venue not under the regulatory remit of the Securities and Futures Ordinance. The Private Market will serve as a ‘nursery’ for early stage companies before they are ready to enter public markets.”

The reverse IPO: Simpler, but not necessarily a successful way for crypto companies

On Aug. 29, the Hong Kong Stock Exchange (HKEx) announced that Huobi had acquired controlling stock interest in Hong Kong-based electronic products manufacturing firm Pantronics Holdings Ltd.

Huobi reportedly seized an overall stake of 71.67 percent in Pantronics, alongside blockchain services provider platform Fission Capital — at a breakdown of 66.26 percent and 5.41 percent respectively.

Huobi’s purchase had the apparent signs of being a reverse IPO. However, Sandy Peng, a partner at Fission Capital, told Cointelegraph that “for the time being, this is a straight forward acquisition [...] As stated in the announcement, Huobi intends to start new blockchain-related businesses using this entity.”

Indeed, the reverse IPO way, despite being cheaper and faster, has not proven to be fruitful for crypto companies: On Aug. 1, when crypto evangelist Mike Novogratz’s crypto-focused merchant bank Galaxy Digital made its trading debut on Toronto’s TSX Venture Exchange, the largest stock exchange in Canada, it shares plunged 20 percent.

Lacking the two years’ of audited financials required for a U.S. IPO, Novogratz instead acquired a Canadian crypto start-up Coin Capital, which he then merged with an already TSX-listed Canadian shell company Bradmer Pharmaceuticals.

Before approving the listing, Canadian regulators subjected the firm to close scrutiny and pushed back its trading debut from April to August, during which a protracted downtrend in the crypto markets saw BTC below $6,000.

The U.S. SEC advises investors to be extra cautious when investing in the stocks of reverse merger companies.

From Coinsquare to Coinbase: More potential IPOs on the horizon

In September, Techcrunch reported that Robinhood, a stock and cryptocurrency trading platform with five million customers, was looking for a chief financial officer (CFO) to navigate the company through the path to an IPO. The Silicon Valley startup is already undergoing a series of audits from the SEC and the Financial Industry Regulatory Authority (FINRA) to ensure regulatory compliance.

Coinsquare, one of Canada’s largest cryptocurrency exchanges, is aiming to hold an $120 million IPO in September to facilitate overseas growth, according to the Bloomberg report. Interestingly, Coinsquare plans to sell its shares on the main Toronto Stock Exchange, “in contrast to several crypto companies which have used a shortcut to list on Canada’s junior TSX Venture Exchange in recent months via reverse takeovers,” as the media points out.

Interestingly, Coinsquare chief executive officer Cole Diamond insisted that Coinsquare was not taking the reverse IPO route, saying:

“Hell no. We believe that there are a tremendous amount of low-quality deals going public.”

Another major America-based crypto exchange, Coinbase, which has a reputation for being fully compliant with regulators, has also been flirting with the idea of holding an IPO since December 2017, but is yet to disclose any concrete details on going public. Meanwhile, all eyes are on Bitmain and its competitors, who are racing to enter the blockchain-friendly Hong Kong market.