The sharp decline in cryptocurrency values that started in early October has cast a long shadow over the United States initial public offering (IPO) market, creating significant hurdles for companies planning to go public. The downturn has erased a staggering over US$1 trillion from the value of digital assets, making recent crypto-related IPOs some of the worst performers and causing other candidates to push out their timing.
IPO Performance Takes a Hit
This quarter, the returns from new U.S. listings have weakened dramatically. Data shows that shares of U.S. IPOs that raised more than US$50 million have fallen an average of 5.3 per cent. This performance stands in stark contrast to the S&P 500 Index, which has gained 0.9 per cent in the same period. The situation is far more severe for the crypto sector. The five cryptocurrency companies that have gone public this year are down an average of a massive 31 per cent this quarter.
This poor performance raises serious questions about the potential reception for high-profile companies like Grayscale Investments Inc., which publicly filed for an IPO on November 13, and BitGo Holdings Inc., which filed on September 19. The current environment presents a much higher bar for any company, in any sector, considering a public debut.
Mixed Reception Even Before the Crash
Even before the October crash, the reception for crypto IPOs had been inconsistent. Shares of the Winklevoss twins’ crypto exchange, Gemini Space Station Inc., fell 14 per cent from its US$28 IPO price after its September debut. EToro Group Ltd. fared even worse, with its stock declining more than a fifth from its May debut by the end of the third quarter.
Companies that were performing well were not spared from the market downturn. Shares of the Tom Farley-led institutional crypto exchange Bullish, which debuted in August, have pulled back 38 per cent since the start of October. Similarly, the share price of stablecoin issuer Circle Internet Group Inc. According to Josef Schuster, founder of index provider IPOX Schuster, "Crypto will probably be the least favoured sector given investors have suffered a lot of losses." He noted that while companies may not be forced to completely delay their listings in December, they will likely have to lower their pricing expectations to attract investors. The immediate health of the broader IPO market, including the prospects for more crypto-related names, may now hinge on whether equity markets experience a traditional Santa Claus rally. While investment bankers are eager to complete deals in the narrow window between Thanksgiving and Christmas, some have already postponed their plans. John Foraker, CEO of Once Upon A Farm PBC, announced via a LinkedIn post that he decided to postpone the kids' food maker's IPO until 2026, citing a government shutdown as a contributing factor. One potential silver lining for the sector is that the recent crypto volatility has generated greater trading volumes, which typically benefits exchanges. The 14-day average trading volume in Bitcoin this month reportedly hit its highest level since March.Outlook and Industry Impact
