Crypto SPACs Wither On The Vine As Wall Street Rally Leaves Them Behind

Wall Street may have re-entered bull market-territory, but increasing stock prices are not doing anything to revive investor interest in taking cryptocurrency companies public through special-purpose acquisition companies (SPACs).

“The capital markets remain somewhat inhospitable to crypto companies,” says Brian Dobson, managing director of disruptive technologies at Chardan, a New York-based investment bank specializing in SPACs

Since the-frenzy of 2021 chilled at the onset of the crypto winter early the following year, nine digital-assets companies looking to go public through SPACs have abandoned their plans, according to data from SPACInsider. These include stablecoin issuer Circle, crypto exchange Bullish Global and brokerage eToro. With deals valuing the companies from $160 million to more than $10 billion, over $35 billion worth of announced crypto SPAC transactions have failed to be completed since March 2021.

Out of 26 announced crypto-related SPACs since 2021, according to data from SPACInsider, only one was completed in 2022 – bitcoin miner BitDeer. After several delays, the Singapore-based miner was acquired by a Nasdaq-listed SPAC on April 14 of this year, with its shares closing at $7.03. It is currently trading at $11.52 and is the third-largest crypto mining company by market capitalization at $1.28 billion, after Las Vegas-based Marathon Digital and Castle Rock, Colorado-based Riot Blockchain
RIOT
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Five transactions worth $6.7 billion remain open, three of which are crypto miners, according to SPACInsider.

Apart from miners, crypto hardware companies could also fare well from public listings. GSR II Meteora Acquisition Group’s acquisition of bitcoin ATM operator Bitcoin
BTC
Depot is the latest crypto SPAC deal to be approved by shareholders, and only the second of the year. Bitcoin Depot’s first day of trading on the Nasdaq exchange is slated for July 3

“Bitcoin Depot is very unique in that it offers a non-custodial solution for its users to buy Bitcoin, and it does not offer any other cryptocurrencies, nor does it offer lending or staking,” says Bitcoin Depot founder and CEO Brandon Mintz. “We believe this simple model contributed to the company’s success at completing a public transaction.”

It’s been a bleak year for crypto companies looking for financing. There is not much interest in initial public offerings, says Dobson, adding “We haven’t seen a lot of follow-alongs or secondary and the debt markets aren’t there either.”

Venture-capital funding for the sector has also dried up, falling 78% in the last year, with a total of only $2.6 billion raised in Q1 2023, compared with an all-time-high of $12.3 billion in Q1 2022, according to PitchBook.

The U.S. crackdown on the digital-assets industry also deters investors. Led by the SEC and including other regulators, the White House and some members of Congress, Washington has been acting to rein in cryptocurrency practices deemed dangerous to investors. Early in June, the SEC sued two of the world’s largest exchanges, Binance and Coinbase, claiming they were operating without required registration.

“The Coinbase problem becomes a concern for other companies,” says a lawyer who specializes in SPACs and who requested anonymity. Coinbase, the only publicly listed crypto exchange in the United States, is embroiled in a legal battle with the Securities and Exchange Commission over the alleged sale of unregistered securities.

Successful crypto SPACs of the past two years have also been underperforming compared to similar deals in other industries. The median crypto SPAC shareholder has seen an 87.1% loss on their investment, according to SPAC Insider, underperforming every industry except cannabis. Natural resources and industrial SPACs have seen the highest median returns, a 4.5% loss and 22.5% gain, respectively.

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