One of the world's largest cryptocurrency exchanges could soon be the first big one to be publicly traded.
Singapore-based holding company BTHMB is looking to list in the U.S. by acquiring a publicly traded company here. On Tuesday, a holding company called Blockchain Industries, which trades publicly on U.S. over-the-counter markets under the ticker BCII, announced it had signed a binding letter of intent with BTHMB, which is being renamed Blockchain Exchange Alliance.
This so-called reverse merger is a nonconventional way of getting into the public markets and could be much faster than an initial public offering, or IPO. A source told CNBC that Blockchain Exchange Alliance had contemplated listing in Singapore but did not want to wait the year or two it might take to complete an IPO.
The combined company plans to eventually "up-list," meaning it would move from over-the-counter markets, which are known for trading penny stocks, to the New York Stock Exchange or Nasdaq, sources told CNBC. That would also require the company to meet stiffer listing requirements.
Blockchain Exchange Alliance would wind up being the majority of the combined company.
This would mark the first major cryptocurrency company exchange to be publicly listed. While none have taken this IPO route, this reverse-merger move has already been tested.
Former hedge-fund manager Mike Novogratz used the tactic to list his crypto merchant bank on a Canadian stock market. He first bought Canadian crypto start-up Coin Capital, then merged through a reverse takeover with Canadian shell company Bradmer Pharmaceuticals. The renamed company trades as Galaxy Digital Holdings Ltd on Canada's TSX Venture Exchange.
But Novogratz's company has struggled along with bitcoin. In the first quarter of 2018, it lost $134 million as cryptocurrencies lost half their value. Since its trading debut on Aug. 1, shares of GLXY have dropped roughly 36 percent.
According to an investor deck seen by CNBC, Blockchain Exchange Alliance says it has broader plans in crypto beyond bitcoin. It's planning to buy up and consolidate exchanges across the world. It plans on creating a global crypto exchange alliance, which is already underway. The group intends to have nine exchanges by the end of this year, and as many as 40 by the end of 2020, according to the investor deck.
Crypto controversy
Blockchain Exchange Alliance acquired a controlling interest in Bithumb Holdings and as a result now has an interest in Bithumb Korea, according to the documents. The Seoul-based exchange is the second-largest by exchange volume, according to Coinmarketcap.com, and was the largest as of November 2018, according to a recent report by CryptoCompare.
The accuracy of that trading volume has come under question.
In December, Forbes reported that a cryptocurrency exchange rating service called CER had accused Bithumb of faking more than 90 percent of its trading volume. As of the summer, the exchange ranked among the bottom of the top 10 global exchanges by daily volume. By November, though, CER said it jumped to second on CoinMarketCap.com's list of exchanges measured by volume. CER claimed it was a result of selling and buying at the same time to create misleading and artificial activity, known as "wash trading."
In June, Bithumb was the victim of a high-profile $31 million hack. The exchange said it was temporarily suspending deposit and withdrawal services, that the stolen coins would be covered from its own reserves and that all users' assets were being transferred to safer "cold wallets."
The deal may not sit well with regulators paying close attention to the nefarious sides of crypto. Since transactions are anonymous, many have called out their potential use for money-laundering and criminal activity. If nothing else, the stock may trade at a discount because of that risk, a source told CNBC.
Cryptocurrencies have gotten their fair share of criticism, especially as the buying frenzy has cooled and the bitcoin bubble seems to have popped. The price of the world's largest cryptocurrency has dropped more than 70 percent in a year.
Some of Wall Street's most closely followed CEOs warned against investing in cryptocurrencies, even at the height of the 2017 boom. J.P. Morgan Chase CEO Jamie Dimon called it a fraud, while Berkshire Hathaway's Warren Buffett has repeatedly warned against investing in it and famously likened the cryptocurrency to "rat poison." Citadel's billionaire hedge-fund manager Ken Griffin is among the many who have called out similarities between bitcoin and the most famous financial bubble of all time: the Dutch tulip bulb mania of the 1630s.
Nouriel Roubini, nicknamed "Dr. Doom" for predicting the financial crisis, is one of the loudest critics, recently telling U.S. senators at a hearing on Capitol Hill that "crypto is the mother or father of all scams and bubbles." He also criticized blockchain, calling it the most "over-hyped — and least useful — technology in human history."
Not everyone has given up on it in 2019, though. Despite the ongoing bear market, both the Intercontinental Exchange, or ICE (parent company of the New York Stock Exchange) and the Nasdaq plan to launch bitcoin futures this year. Multiple attempts to launch the first-ever bitcoin exchange traded fund, or ETF, are still being considered by the Securities and Exchange Commission.