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Crypto firms struggle to go public due to SEC scrutiny in the wake of FTXs' collapse

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(Kitco News) - Amid the collapse in valuation witnessed in the crypto market over the course of 2022, the U.S. Securities and Exchange Commission (SEC) has increased its scrutiny of crypto companies trying to go public in an effort to help protect investors.

As was first reported in the Wall Street Journal, several prominent crypto firms, including Circle Internet Financial, which is the issuer of the stablecoin USD Coin (USDC), the multi-asset investment company eToro Group Ltd, and the digital asset exchange Bullish Global all failed to secure the required approvals from the SEC to go public in recent months.

All three firms attempted to get listed on the stock exchange via mergers with special-purpose acquisition companies (SPACs) but had their plans thwarted as market turbulence and heightened regulatory checks brought an end to the SPAC boom in late 2022.

Galaxy Digital Holdings Ltd. has also faced intense scrutiny from the SEC in its quest to become a U.S.-listed public company. The firm has been subject to numerous rounds of questions from SEC staff about its business since filing paperwork to go public on the Nasdaq Stock Market. The firm is currently listed on the Toronto Stock Exchange and expects to eventually be approved by the SEC for listing in the U.S.

The U.S. regulator further increased its scrutiny in the wake of the collapse of high-profile crypto companies like Terra, Three Arrows Capital, and FTX, with many crypto firms now saying that the pace of the agency’s review is hurting their efforts. One of the main objections from these firms is that their digital assets aren’t securities and therefore don’t need to comply with investor-protection rules. Thus far, SEC Chair Gary Gensler has disagreed with that perspective and feels much of the industry is non-compliant.

As part of the listing process, SEC accountants and lawyers review and probe deeper into all financial disclosures and legal risks to ensure that the companies have provided investors with all the information required by law. The end goal is to have the SEC deem the company’s disclosures “effective,” which makes its shares suitable to be sold to the public.

The SEC has been reviewing the disclosures from Bullish, Circle and eToro for more than a year and still hasn’t declared them effective. Galaxy reportedly received one letter from the SEC with more than 90 questions. Coinbase has so far received three letters; Bullish has been required to respond to more than ten letters over the course of a year plus, according to people familiar with the matter.

Galaxy Digital Chief Executive Mike Novogratz said that the process has “been frustrating that it’s taken as long as it has,” during a conference call in August 2022.

Part of the issue for some of the firms, such as Circle, is that their partnership with a SPAC imposed strict deadlines to close the deal. Last February, Circle extended the timetable for its merger with SPAC Concord Acquisition Corp. to December 2022 and spent much of the year working to address the questions that the SEC raised with its disclosures.


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After FTX filed for bankruptcy on Nov. 11, the SEC further increased its scrutiny of crypto firms. It issued a list of 16 questions that it wanted crypto companies to address in public filings, some of which were relevant to the firms under review. The new challenges brought about by this review ultimately led to Circle and Concord calling off their deal in early December.

“I think that it’s been a thorough process,” Circle Chief Executive Jeremy Allaire said at the time about dealing with the SEC. “Unfortunately, it was a longer process than we had hoped.”

For eToro, the main focus of the SEC has been on its crypto business and on the accounting treatment eToro applied to digital assets it held for users. EToro released a statement saying it believes it will become a public company in the future, but it “will wait for the right opportunity to take this step.”

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