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On October 20, Mark Wood, co-head of Katten’s National Capital Markets practice, joined with representatives from investment bank HC Wainwright & Co., LLC and leading listed Bitcoin miner Bitfarms Ltd. to discuss the cryptocurrency landscape. and discussed cryptocurrency capital raising. Katten’s he focused on market participants as part of the 2022 “Crypto with Katten” annual symposium (you can view the symposium agenda here). Below are the highlights of the presentation.
Crypto in the US public capital market
In recent years, a wide variety of companies in the cryptocurrency space have gone “public”, listing their common stock on U.S. stock exchanges, cryptocurrency mining companies, e-commerce and virtual payment platforms, and cryptocurrency exchanges. , another financial services company focused on the evolving crypto ecosystem. Importantly, many foreign cryptocurrency businesses have opted to leverage the U.S. capital markets for equity funding or have invested in U.S. securities trading, including many of the largest cryptocurrency miners by market capitalization. I have chosen to list my shares on the stock exchange.Me
From all-time highs to challenging market
Listed crypto companies saw record growth through the end of 2021, with the market cap of listed crypto miners surpassing $16.5 billion by the end of the year. In fact, in 2021, the stock prices of many publicly traded cryptocurrency-related companies have risen faster than the price of Bitcoin itself during the same period. But “cryptocurrency” stock prices fell alongside the general market in 2022, with three publicly traded bitcoin mining companies losing more than $4.5 billion in market cap. This has fueled the collapse of cryptocurrency prices in general on top of rising costs. of electricity and general economic and inflationary pressures. Year-to-date, the price of Bitcoin is down about 65%, and many major Bitcoin mining companies have lost 74-90% of their market capitalization percentage over the same period.
Price correlation with equities
Prior to the COVID-19 pandemic, industry proponents cited the lack of correlation between cryptocurrency prices and traditional financial assets such as stocks and bonds as a key differentiator for the sector, citing cryptocurrency could serve as a strategic hedging and diversification tool. Investor. However, a recent study conducted by the International Monetary Fund found that a clear statistical correlation has developed between the prices of stocks and cryptocurrencies (and crypto-focused stocks) over at least the past two years. Confirmed. In fact, the study notes that cryptocurrency prices may be more closely correlated with stock market prices than other traditional financial assets such as bonds and precious metals.
Funding Options for Public Crypto Companies
Despite the difficult economic environment, many publicly traded cryptocurrency companies have continued to invest in (1) traditional underwriting public offerings (sometimes secretly sold public offerings), (2) privately negotiated common stock (3) registered “direct” offerings sold directly to a select group of investors, (4) “at the market” (ATM) offerings, and (5) other Among other alternative financing structures, the scheme of “equity lines of credit”.
Recent SEC Statements and Comments
While U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has continued to publicly state that most cryptocurrencies themselves are securities and are subject to the jurisdiction of the SEC, the SEC does We are continuing to scrutinize it closely and are noticing increased regulation. Space monitoring remains a strategic priority. For example, panelists discussed the accounting for crypto assets held by listed crypto asset custodians, including the release of staff guidance suggesting that crypto assets should be accounted for as liabilities on the corporate balance sheet. discussed the staff’s focus on Exchanges will begin including additional corresponding risk factors in their regular reports. We also discussed enforcement actions being brought against international semiconductor chip manufacturers. The company argued that it had insufficiently disclosed the importance of crypto-mining-related activities to the revenue growth of its specialized graphics processing unit chip business, which manufactures the chips used in Bitcoin. Other cryptocurrency mining rigs. Additionally, the panel noted that the SEC nearly doubled the size of its executive branch’s “Crypto Assets and Cyber Unit” in May 2022.
Most recently, the SEC’s Division of Corporate Finance released guidance and sample comment letters. Available here. It advises companies to properly disclose any material adverse exposures they may experience following recent cryptocurrency-related or related bankruptcies and/or financial difficulties between cryptocurrencies. asset market participants; Specifically, the sample comment letters, to a significant extent, discuss (1) how recent bankruptcies have impacted the business; or other collateral. financial activities to which they or their affiliates are a party; and (3) the risks faced by companies in relation to regulatory developments in the crypto space, among other disclosures. The guidance notes that the sample comments are not intended to serve as an exhaustive list of cryptocurrency-related disclosures and that companies should assess how they are affected on an individual basis. .
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