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Timing is key as Bakkt secures NYSE listing

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Digital assets marketplace Bakkt is set to go public on the New York Stock Exchange in 2021, which could pave the way for more cryptocurrency service providers to follow suit. The Intercontinental Exchange announced on Jan. 11 that its cryptocurrency marketplace Bakkt would soon be listed on the NYSE public stock market. This will be done through a merger with a special purpose acquisition company VPC Impact Acquisition Holdings.

The shell company will be used to merge with Bakkt in order for it to be listed on the stock market without having to undertake an initial public offering. Initial reports suggest that Bakkt will be valued at over $2 billion after the merger, and the exchange intends to raise a further $532 million to bankroll the ongoing development of its application, a wallet and rewards app targeting retail users, which is expected to be launched in March.

The company has indicated that the merger is expected to be wrapped up in the second quarter of 2021. This will then see the newly formed Bakkt Holdings Inc. listed on the NYSE.

A lot has been made of the investor presentation that was submitted to the U.S. Securities and Exchange Commission. The document outlines the potential for the cryptocurrency market to be valued at $3 billion by 2025, underpinning the potential value of the space in the coming years. The total cryptocurrency market capitalization topped $1 trillion for the first time in January 2021.

Bakkt CEO Gavin Michael told Cointelegraph that the merger makes sense, given the amount of capital that has already flowed into the cryptocurrency space and the potential growth it predicts over the next three years:

“Bakkt and VPC believe there is enormous potential in building a marketplace for the nearly $2T of digital assets that exist today and the many others that will be created because a marketplace such as this exists for both brands and consumers.”

Michael added that the merger will give Bakkt access to the necessary capital to expand and provide more opportunities for consumers to unlock trillions of dollars held across various digital assets. The company also expects to benefit from the brand recognition that will come from becoming a publicly-traded company.

A sign of things to come?

Mati Greenspan, crypto analyst and founder of advisory firm Quantum Economics, told Cointelegraph that the timing of the merger and Bakkt’s decision to go public is not surprising, given that the cryptocurrency markets are currently booming.

Noting that the move will no doubt be lucrative for Bakkt, Greenspan also agreed that the push to go public is an indication that the traditional finance sector is beginning to recognize cryptocurrency and blockchain-focused businesses as mature and valuable: “It’s a reflection of where these companies are in their life cycle and how it coincides with the readiness of the traditional market to accept them.”

While some major institutional investors like MicroStrategy have made waves across the industry with their billion-dollar purchases of Bitcoin (BTC) in recent months, Greenspan highlighted the efficacy of diversifying investment in the space. While holding cryptocurrencies is a direct way to gain exposure to the ecosystem, Greenspan said investing in the right companies could potentially be more beneficial:

“There is a natural appetite for all investors to be as diverse as possible. Just as one whose portfolio consists of gold would also invest in mining stocks or an oil tycoon would invest within their own industry. Many times investing in a company directly can be more lucrative than buying a token whose value may be unknown.”

Joel Edgerton, chief operating officer of U.S.-based cryptocurrency exchange bitFlyer, told Cointelegraph that the timing of the initial public offering was opportune, given the current market highs and a strong interest in cryptocurrencies. He also offered an alternative stance on the reasons behind the ongoing surge, suggesting that small investors and independent firms are driving the cryptocurrency boom: “Coinbase and Bakkt are taking advantage of the IPO window to allow their investors an exit event and use the subsequent publicity of their early moves to strengthen their brands.”

Edgerton also believes in the propensity of smart investors to fund companies involved in the cryptocurrency space without actually buying BTC or other altcoins. The lack of options to gain widespread exposure to cryptocurrency also plays a role:

“There is a definite appetite for investors to gain exposure to the cryptocurrency space by investing in crypto companies, while not directly holding cryptocurrency assets. […] Purchasing shares and indirectly profiting from the growth in the industry is definitely attractive. Since there is still no easy-to-purchase ETF or mutual fund for crypto, then crypto companies become a proxy cryptocurrency investment.”

Ben Caselin, head of research and strategy for digital asset exchange AAX, told Cointelegraph that Bakkt’s move does not necessarily reflect recognition from the wider financial industry. In contrast to the sentiments of Greenspan and Edgerton, Caselin also highlighted the fact that shareholders of Bakkt, when it is finally publicly traded, will be banking on the assumption that the exchange is successful in the future. While this is intrinsically tied into the cryptocurrency markets, Caselin draws a clear line between investing directly into cryptocurrencies and exchanges:

“It’s important to understand that investing in a cryptocurrency exchange is not a replacement for holding actual digital assets or trading futures. It is, in principle, a way to gain exposure to the wider industry, but more specifically, holding Coinbase or shares in Bakkt rests on the assumption that this particular exchange will fare well in the years to come.”

IPO’s and mega deals

The likes of Bakkt and Coinbase have seemingly gained a headstart in the race to access public funding and publicity as they look to build on their current offerings. Despite Bitcoin hitting new all-time highs on separate occasions in recent weeks, Edgerton believes that the space is still in its youth, and investment from the wider public will become a key driver of growth over the next decade: “IPOs are obviously a major source of funding, and a successful IPO should also encourage VCs to invest in the next major crypto unicorn.”

Related: Coinbase IPO to further legitimize crypto, but limitations remain

Greenspan also sees more billion-dollar deals on the horizon for the cryptocurrency space, while suggesting that some of these might just be done using the nascent technology powering the future of finance: “As the industry grows, there will be many more crypto-related mega-deals. Perhaps one day soon, all IPOs, acquisitions and mergers will happen using distributed ledger technology.”