Crypto ‘Secondaries’ Prices Jump as Expectations of IPOs Climb

(Bloomberg) — Crypto funds and private investors are buying shares of private digital asset companies with the expectation that some of them could go public in the coming months.

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Equities of companies such as stablecoin issuer Circle Internet Financial, crypto exchange Kraken and blockchain forensics provider Chainathesis have been traded more actively lately, and many of the big discounts from a year ago have receded, according to various trading venues. According to secondary market platform Forge Global, crypto buy-side demand in the first half of 2024 is 28% higher than in the second half of last year and 126% higher than in the first half of 2023.

Prices of so-called subordinated assets (shares or tokens held by former or current employees or early investors) have risen along with demand. Implied equity prices on crypto exchange Kraken are up 77% year-to-date, while crypto company Ripple is up 13% and blockchain forensics provider Chainalytics is up 17%, according to Forge’s platform activity.

“There is pretty strong retail investor demand,” said Andrew Saeta, Forge co-head of institutional sales. “We have definitely seen an increase on the corporate side. “I would say the market is the strongest we’ve seen in a while.”

It was Bitcoin’s rally in the first half that led to a resurgence of interest in cryptocurrency; Bitcoin reached new highs in March thanks to the launch of US exchange-traded funds that invest directly in the world’s largest cryptocurrency and what appears to be a recent regulatory U-turn. In Ethereum. In fact, cryptocurrency policy has become part of the debate in the upcoming presidential campaign. Coinbase Global Inc.’s 36% rise this year has also made similar private businesses look more attractive.

Despite increased interest, demand is still below 2021 levels, according to many secondary platforms and funds that purchase secondary tokens and stocks.

“Valuations have increased but demand has not increased that much,” said Taran Sabharwal, CEO of Stix, a marketplace where more than 50 tokens are sold.

The secondary market has been decimated by the 2022 implosion of Sam Bankman-Fried’s crypto exchange FTX. Demand has diminished further as crypto prices have fallen and the industry has entered crypto winter.

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“There has been less activity in the blockchain market since FTX, almost a buyer strike as most institutional investors are scared,” said Brian Dixon, CEO of secondary capital buyer Off The Chain Capital. “We are now starting to see more activity in some names. “But as markets continue to move forward and revenue for many blockchain companies increases, I predict we will see more institutional investors looking to capture more of these secondary opportunities.”

As of the end of May, 25% of Dixon’s $370 million fund consisted of secondary funds, he said.

Investor Haun Ventures acquired cryptocurrency security provider Fireblocks and Chainalytics at steep discounts about a year ago. But many secondaries are still trading at a 40% to 70% discount to their final rounds.

“Since most major crypto companies have shown strong operating performance over the past six months and their fundamentals have improved significantly, it is a good time to re-evaluate secondary opportunities,” said Stan Miroshnik, founder of TenSquared Capital. “Many of these companies still have significant funding flowing from previous rounds, are generating cash again, have weathered the down market and exited lean and focused.”

If crypto prices continue to rise, the next year and a half could see the largest wave of crypto-related initial public offerings on record, according to IPO researcher Renaissance Capital. The researcher said as many as 15 companies could go public. Kraken is in talks for a potential pre-IPO round, Bloomberg previously reported. Cryptocurrency has also become a political issue in this year’s US presidential election, which could mean a more favorable regulatory environment for the industry going forward.

“A lot of people are excited about the developments going forward,” Forge’s Saeta said. “Especially because there will be changes from a regulatory perspective.”

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