The age-old (or seemingly so at this point) question of crypto / digital assets / tokens vs. securities rears its head once again.
From an M&A perspective, crypto.com announced its initial foray into traditional securities markets via the acquisition of Watchdog Capital. Historically it has been the securities side entering the crypto markets, as well evidenced by Robinhood’s proposed acquisition of Bitstamp. Of note, crypto.com’s strategic move is a bit of a toe in the water vs. a full plunge. Watchdog Capital is licensed to operate as a equity and equity options broker in 53 U.S. states and territories and markets. However, it markets itself as a securities new issuance offering platform (i.e raising capital) rather than a business for buying and selling existing securities. Regardless, crypto.com used this announcement to signal their intention to offer the “ability to engage with stock and options markets”. The backdrop includes an ongoing battle with the SEC which involved a Well Notice issued in August and legal action by crypto.com against the SEC. It is important to note that any acquired licenses, as proposed in this case, must receive regulatory approval for transfer in M&A situations.
Separately, the debate over what constitutes a security arose with Immutable, the well-regarded blockchain-based game development, discovery and monetization platform. They announced the receipt of their own Well Notice, in this case appearing to take issue with the issuance of the IMX token in 2021. We will see how this plays out, however, if the SEC’s concerns relate to the IMX token rather than in-game tokens, that would be encouraging overall.
Why does this all matter in the context of M&A? Today, M&A in our sector is being materially inhibited by regulatory uncertainty. That is true for both i) M&A within the crypto industry and ii) what we call “bridge transactions” where crypto and traditional businesses are involved.
Big upcoming week with the U.S. elections on Tuesday.