By Larry Wright
If you have been following the prospect of blockchain technology and decentralization a bit closer then you already know just how much in demand the whole thing is. Not only the demand for cryptocurrencies and decentralization has steadily increased in the past few years but the adoption rates are pretty higher end too. This suggests that in the near future our entire financial regime might get updated on the prospects of decentralization and cryptocurrencies.
The crypto market is definitely a peculiar place to be, it is not like your standard forex or stock market because it is extremely volatile and at times might not make much sense to you. At times even the most professional traders might have a hard time keeping track of their investments and the next move that they should be making when trading in multiple cryptocurrencies. With that being said have you ever considered from where all these cryptocurrencies come from?
What is their origin, can anyone develop cryptocurrencies and make them available for active trading and make millions of dollars overnight? It definitely doesn’t work that way. At first, there was only Bitcoin, the flagship crypto which got introduced back in 2009 and after some time it became a gigantic success, people were investing their money in it and seeing amazing just out of the context returns on their initial investment. This strengthened the belief of traders, people who had money to invest in a dedicated asset, and entrepreneurs as well because suddenly they had an idea to scale up this crypto market by introducing more cryptocurrencies just as Bitcoin.
Right after the success of Bitcoin and it becoming a mainstream crypto sensation Ether got introduced by Vitalik Buterin and it was the 2nd cryptocurrency to ever be introduced into the crypto market. Later on, multiple other cryptocurrencies made their way to shine on the horizon such as XRP, Litecoin, Dogecoin, and multiple others. Today there are so many cryptocurrencies to choose from and to develop a crypto portfolio around.
All of these cryptocurrencies that got introduced after Bitcoin made its debut are known as altcoins and even to this date multiple cryptocurrencies are being developed and made available for active trading in the crypto market. Interested in finding more about the process which allows a private company to sell the critical assets of its business to the public? If so then you have definitely come to the right place.
What is an IPO?
An IPO or initial public offering is a process using which a private company is able to sell multiple crypto assets of its business to the public over the crypto market in new issuance. The first thing that they have to do is to raise capital from public investors so they can reach a dedicated point where they are financially ready to make the next move which is to take their initial public offering online. But during the whole process, they have to comply with multiple regulations that are present at the moment for a new company trying to issue an IPO and they have to be mature in terms of increasing their disclosures and transparency.
If a company doesn’t have an IPO then it is considered a private business and is relatively owned by a small number of stakeholders. These dedicated stakeholders could be the initial founders, family or friends, or venture capitalists who got into the business at the very beginning of the initiation phase for the project.
An IPO on the other hand is the next possible step in which all dedicated riches of the company are converted into a dedicated sum that reflects all present assets owned by the company. It is considered to be a milestone for that particular business or company within the crypto space from a regulatory standpoint to opt for an IPO. In the earlier times, the idea of cryptocurrencies was taken as a hoax and these were considered to be get-rich quick schemes and or scams and the companies that were running or dealing with crypto were simply considered to be fraudulent.
A lot has changed since then and even financial enterprises such as banks and private companies are entertaining the possibility of launching their own IPO and in doing so presenting the public with a new cryptocurrency. If a company wishes to launch its own IPO they need to engage with investment banks and underwriters so they could evaluate the presumed risks that the company might be able to face when going public. There is a fee that these professionals are going to charge to the company they are helping to evaluate the risks.
The process is known as underwriting and usually, an investment bank which is the underwriter serves as an intermediary between the issuing company of the token and the general public and helps the issuing firm in preparing the token and making it available to the public for selling purposes. After an IPO has been confirmed and passed the crypto assets of the company are made available to trade on the crypto exchange. Crypto exchanges are nothing but virtual markets where all these securities and tokens could be traded which means these are being bought and sold in real-time.
Therefore the very end-stage for an IPO is known as going public. This suddenly boosts the prestige of the crypto company or issuing authority and is considered relatively safe because the IPO was able to pass all the regulatory requirements and has managed to meet the required obligations after which it has been given a green light for active trading. Multiple businesses start as privately owned firms but when they reach a point where they can deal with publicly traded benefits and or responsibilities they suddenly start to showcase their interest in making their assets or shares available publicly. The shares are being traded on the stock market whereas the digital assets are traded on a crypto exchange.
Before the business or issuing entity has been listed on an exchange or is being printed publicly the value of share ownership for a dedicated company will get determined with respect to private deals only. It is only after the IPO has passed the initial screening and has been listed onto the crypto market the value for those tokens now is determined by the very demand and supply of these securities that are being traded on the exchange.
How Does an IPO Work?
Before getting into the whole working of an IPO it is important to know that a company or business just out of the blue can’t start issuing an IPO or their tokens for public trading. There is a complete screening process that must be completed by the business or issuing authority to qualify for the deal. Usually, a company that has matured to a point where it can now handle the additional responsibilities of trading its assets publicly is provided with an IPO but before that can happen the company first needs to show some kind of interest in taking its assets live for active public trading.
There is a basic difference between initial coin offerings or ICO and initial public offerings or IPO. It is important to clear this difference before going any further as in the case of ICO you don’t get to secure an ownership stake within the crypto project or the company that has issued this in the first place. What ICO participants are doing is that they are investing in primarily a worthless currency which they think might increase in value in the future. But with IPO you get to have a proper stake within the company or business that is making its assets available for public trading.
There are two potential ways companies can show interest, they can either request private bids from the underwriters such as banks and other financial enterprises, or they can make public statements regarding that they have interest in an IPO so that some general likability could be generated from concerned parties and or the public. It usually falls on the shoulders of the company that is willing to go public so it can either choose a single underwriter or a myriad of underwriters to be able to manage and tackle multiple stages of the IPO process.
There are certain factors that go into the very choosing of underwriters such as their research quality, experience within the industry, reputation among other IPO companies, and overall distribution. These underwriters will help the issuing firm to manage either a number of or multiple aspects of the IPO generating process. This also includes preparation of the filing, documentation which needs to be shared with the public and or the regulators who are put in charge of screening the IPO process. Marketing of the IPO, due diligence along with how tokens will get issued and what would be the starting price, etc.
These are not only the underwriters that are hired to accompany the IPO process because there are also accountants, lawyers as well as regulatory experts that accompany the process. All of these have to work in close collaboration with the market regulators of the country in which these tokens will be made available. Talking about the United States if a company wants to go public and shows interest in an IPO then it would have to file a request with this Securities and Exchange Commission so that a proper hearing could be conducted to dictate whether or not the issuing authority is In Sync with the concerned guidelines who was earlier requesting the initiation of an IPO. Multiple documents need to be filed along with the request for the launch of an IPO.
These documents might include financial particulars of the company, the risk that surrounds the operation of the company along complete information on its management. The market regulators in question have to closely analyze the IPO application for a dedicated company or business and they need to approve it for the company to have an IPO. After the successful completion or moving of an IPO application, the next step is that the crypto exchange where the tokens will be traded should also procure and approve the application from the concerned authorities.
The company that is interested in trading crypto must confine with the requirements of both the crypto exchange as well as the regulators. After these parameters have been talked about and mutually agreed the SEC then requires the issuing company and the underwriters involved to file for a registration statement.
Significance of Registration Statement
As explained earlier the very final stage of confirming that an IPO has been passed is the issuance of a registration statement. This statement in particular is going to ensure that the investors have ample access to trustworthy information regarding the securities. This means that they know what they are investing into, the sheer volume of tokens, and other such information that can help them further dissect if the investment is going to be profitable or not.
After all of this, the Securities and Exchange Commission will conduct due diligence for the sake of confirming that all the required information has been provided and disclosed to the public in an appropriate way. After all of this, the IPO is finally promoted in a roadshow the purpose of which is to generate interest among underwriters and common people and provide those banks and financial institutions with a chance to properly estimate the very demand for the token that is going to be issued. This is essentially a marketing phase and during this underwriters might make multiple revisions to their own analysis of the firm which might or might not lead to certain changes within the price of the IPO and or the date at which it will be made available for public trading.
A definitive board of directors is developed for the sake of representing the crypto holdings and the company administration as well. After all of that is being said and done the launch date for the IPO finally comes closer and at that date tokens for the issuing company are made available for public trading along with a dedicated allocation that has been reserved for those underwriters who helped throughout the process.
Not everyone initially gets a chance to invest in an IPO because of the solid interest that is regulated around its launch therefore sometimes the demand is going to exceed the total number of tokens that can be sold to the public. Therefore a certain set of thresholds are being designed and are put in place regarding the trading of IPOs so that only a bunch of people who truly meet that criteria are able to take part within the transactions and or secure their investment within that IPO.
There might be local agreements drummed up along with the existing token holders which are mere security for the issuing authority stating that the people who have just invested their money into the coin are not at liberty to sell them right away. There are multiple aspects for these kinds of lockup agreements and it is usually smart to include a few clauses that serve the investor right because only then they would be able to sell them business price drops continue to remain vigilant.
Most of the time, the underwriters are going to price the IPOs at a discounted price to make sure that the demand is usually more than the supply. The price of the token generally rests on the overall performance of the company in terms of the total money it is valued at, multiple indicators including how much money the token is more likely to generate in the future are brought into consideration for the sake of pricing the IPO.
After the launch of an IPO as many would have claimed a piece for themselves the price of the coins might continue to fluctuate. Because at that time the investors who didn’t get a chance to invest their money into the IPO will be adjusting their positions and the under writers as well as investment cooperates will also continue to promote the coin thus making sure that the interest is always there and climbing high among the people to get their hands on the coin.
This is how the game around the prospect of securing an IPO is played. At times the token might not become successful and the whole project might have to be called off but in particular scenarios, the whole thing might become an ultimate success.
That is why companies out there that truly can go out on a limb often take their chances with an IPO because even if it doesn’t become successful they would have drummed up an extreme hype around their IPO launch and hopefully the business of these companies is likely to get a positive turn. So, at the end of the day for eligible companies and businesses, it is more productive to go out on a limb for acquiring an IPO because they don’t have many risks circling their business.
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