Cryptocurrency companies use "backdoor" lists to easily embed them

HONG KONG (Reuters) – Several crypto-currency exchanges have moved closer to traditional markets by buying publicly traded companies, seeking to raise funds and presenting themselves as part of the traditional world of financial services that they have had. formerly rejected.

On February 11, US cryptographic broker Voyager Digital registered for the "back door" of the Toronto Stock Exchange after taking control of UC Resources Mineral Exploration Company.

These purchases, also known as "reverse mergers," allow companies to offer shares to the public without the rigors and regulatory oversight imposed by a full initial public offering (IPO).

"Many exchanges (cryptocurrency) have deployed many strategic efforts to try to legitimize their operations and their reputation, and for some, it is presumed that some exposure to the traditional public market will help," said Fei Ding & Year, Managing Partner. at Ledger Capital, an investment company in digital badets.

The Japan Financial Services Agency (FSA) is to date the only major national regulator to have defined a definitive framework for governing digital badets and the platforms on which they are traded.

In January, OKC Holdings, a company controlled by Star Xu, founder of the OK Coin cryptocurrency, bought 60.5% of construction company LEAP Holdings, a construction company listed in Hong Kong, for $ 484 million. HK ($ 61.69 million).

A few days later, the parent company of the Korean cryptographic company Bithumb announced its intention to create a list of the United States through the purchase of Blockchain Industries.

Last year, investors, including co-founders of cryptochannel software manufacturer ANX International, acquired a majority stake in marketing company Branding China, listed in Hong Kong, while Huobi, a stock exchange. based in Singapore, bought a 72% stake in Hong Kong. Pantronics Holdings power generation company.

Voyager said its listed shares could help finance growth.

"Being a public company allows Voyager to work with the transparency that the cryptography market deserves from its institutions," Voyager CEO Steve Ehrlich said in an email.

Neither Huobi nor OKCoin gave details of their purchase plans.

ANX International remains separate from the renowned BC group, but since the change of ownership, the listed unit has launched new business including a trading platform and digital badet exchange.

A spokesman for BC Group said that being publicly traded gives customers "extra confidence knowing we are a credible company and we are here for the long game".

The spokespersons for OKCoin and Huobi declined to comment.

Neither Bithumb nor its parent company, Blockchain Exchange Alliance, has responded to requests for comment.

LEGITIMACY

Crypto experts said the agreements could help the sector to be better accepted by the general public.

The reputation of cryptocurrencies, and especially stock markets, has been severely affected by fears of price volatility and possible uses of money laundering, along with high-profile hackers and infrastructure failures.

Last year, the New York Attorney General's office warned that several cryptocurrency bourses were plagued by poor market surveillance and generalized conflicts of interest, saying some could operate illegally.

This month, $ 137 million worth of cryptocurrency was frozen in Quadriga's Canadian digital platform user accounts after the founder's unexpected demise, the only person with the pbadword to access this access.

The crypto market peaked in late 2017, when trading volumes increased and Bitcoin, the largest cryptocurrency, hit a high just above $ 20,000. The price of Bitcoin has fallen by more than 80% since then, and trade volumes have fallen.

Some stock exchanges may also be under pressure from investors seeking a way to realize their profits.

"With the market turning south and the regulators not happy, it's an opportunity to satisfy investors and founders looking for an exit," said Zennon Kapron, director of the financial technology consulting firm Kapronasia.

FIGHT WITH REGULATORS

Public quotations from cryptocurrency exchanges also pose a challenge for regulators, who are just starting to struggle with the digital currency trading supervision issues.

Japan's FSA became the first major jurisdiction to regulate stock exchanges in 2016, but has since refined its rules to allow the sector to self-regulate to a large extent.

In the United States, New York State has so far released a handful of so-called BitLicences licenses for businesses operating in virtual currency.

The Hong Kong Market Surveillance Body, the Securities and Futures Commission and the Hong Kong Exchange declined to comment.

However, the commission is considering whether some cryptocurrency trading platforms can be regulated, a process it hopes to complete this year, said Tuesday the Ashley Alder legislature, its managing director.

Hong Kong officials have already questioned the sustainability of cryptography companies, while last year the world's largest manufacturers of cryptocurrency mining platforms failed to follow Hong's IPO plans. Kong, partly because of the issues raised by the authorities.

"It is possible that a cryptographic exchange could incubate a new cryptographic firm within a Hong Kong listed company, preserve the existing business of the publicly traded company and not be treated as a new introduction." on the stock market, but it is very difficult to walk a tightrope, "said one person. familiar with the list committee processes, speaking anonymously because he was not allowed to talk to the media about it.

The listing committee of the Hong Kong Stock Exchange must ensure that a company's activities are sustainable before they can be listed. The miners' offers have been blocked by fears that falling bitcoin prices will make their business model impractical, sources said.

Although backdoor lists are permitted in most countries, some regulators, including those in Hong Kong, may review bids and, in certain circumstances, require a full IPO.

"Cryptographic companies may have a hard time demonstrating their relevance due to the state's regulatory status and uncertain business models," said Jason Sung, a partner at the Herbert Smith Freehills-based law firm. Hong Kong.

Exchanges like Bithumb that are turning to the United States could also pose similar problems.

The SEC has authority over both US companies selling digital securities and reverse merging companies in the United States.

"Depending on what companies plan to do, they may have to seek regulatory approval from the SEC or the CFTC," said Richard Levin, chairman of the firm's financial technology and regulatory council Polsinelli.