CORRECTED-BREAKINGVIEWS-Bourse IPOs make crypto too big to ignore

By Pranav Kiran

TORONTO, Sept 9 (Reuters Breakingviews) - Cryptocurrencies went to the moon. Merchants hawking them hope to be next. Initial public offerings from exchange operators Bullish BLSH.N and Gemini Space Station imply a big opportunity for digital markets. Traditional incumbent Nasdaq NDAQ.O is already following their lead, agreeing to invest in Gemini as the company moves ahead with IPO plans. Its peers will similarly find the roughly $6.5 trillion of global crypto trading volume just in 2024’s fourth quarter hard to ignore.

Shares of Bullish opened at over double its IPO price when they debuted last month. It now trades at an enterprise value of 28 times 2024 adjusted revenue. Gemini – founded by the Winklevoss twins – aims to be next. The $2.2 billion valuation implied by the top of its proposed price range translates to a multiple of over 15 times last year’s sales. Traditional exchanges trade at closer to 11 times.

That disconnect doesn’t reflect present profitability. Intercontinental Exchange ICE.N, Nasdaq and London Stock Exchange LSEG.L have strengthened their operations over the years, while branching out into mortgages, software and data in search of predictable revenues. Bullish and Gemini’s have printed plenty of red ink.

Yet a crypto breakthrough seems imminent. The U.S. Securities and Exchange Commission and Commodity Futures Trading Commission announced last week that exchanges could allow trading of spot crypto products.

The problem for traditional operators is that this comes late in the game. Crypto exchanges like Coinbase COIN.O already swept up masses of retail traders. Yet they’ve spent massively to do so. Gemini lost money in its most recent two years. This long slog is a tough ask for incumbents.

Peter Thiel-backed Bullish’s novel approach - dumping digital tokens into a shared liquidity pool and pricing them with finicky algorithms, married with rock-bottom trading fees - might offer a different path. It is still unproven, though: the company was only narrowly profitable in the quarter ended in March after adjustments including changes in the value of its digital assets.

Crypto exchanges are also unusual in that they combine brokerages and trading venues, functions traditionally separated into different companies. Enabling spot cryptocurrency trading would force bourses to handle their clients' coins directly — something they've wanted to avoid. That helps explain why Nasdaq would instead choose to invest in Gemini.

After all, upstarts have customers, and incumbents have strong operational foundations. Partnering makes sense. The CME joined up with Flutter Entertainment’s FanDuel to build a futures market that effectively allows users to bet on everything from the price of oil to macroeconomic data. Meanwhile, crypto-native bourses can’t launch popular derivatives products without CFTC approval, which traditional finance giants can help with. With trillions up for grabs, there’s enough digital pie to share.

CONTEXT NEWS

Gemini Space Station, the cryptocurrency exchange founded by Cameron and Tyler Winklevoss, has secured Nasdaq as a strategic investor as the company moves ahead with its initial public offering, Reuters reported on September 9 citing unnamed sources.

Gemini is looking to raise $317 million in its U.S. IPO at a valuation of up to $2.2 billion, the exchange said on September 2. The company plans to sell 16.7 million shares priced between $17 and $19 each.

Shares of cryptocurrency exchange operator Bullish opened at $95.7 on their first day of trading on August 13, more than double the IPO price of $37. The company raised $1.1 billion in its IPO.