Matt’s Top 3 SPAC Targets – Crypto

Matt’s Top 3 SPAC Targets – Crypto

SPACInsider contributor Matt Cianci this week compiled his three favorite potential SPAC cryptocurrency targets. We look at why they are compelling and why each could be a fit for a blank-check merger.


A big part of the story of the SPAC explosion that began last year (and shows no end in sight) has been their ability to seemingly pull companies from the future and allow investors to trade them today. That has been the case with the electric and autonomous vehicle technology as well as cannabis enterprises and fintech platforms.

This search for the next sector of the future has continued as we saw last week VPC Impact Acquisition Holdings (NASDAQ:VIH) announce its combination with Bakkt, a fintech platform that will be novel in the integration of cryptocurrency wallets among its features.

It will almost certainly not be the last SPAC target to touch upon the blockchain or cryptocurrency sphere. In fact, blockchain technology developer OBITX announced this week that it is itself working to form a SPAC to combine with an emerging blockchain target.

While it’s a sector that is certainly in its early stages, it is also one that sits at the confluence of many other popular SPAC sectors. Cryptocurrency exchanges and platforms are certainly on the radar of the 12 SPACs currently searching for fintech targets and four looking at financial services more broadly.

Meanwhile blockchain technologies have applications in cloud-computing networks and other types of cutting-edge technology that potentially touch upon all sorts of sectors of the economy. A whopping 79 SPACs currently searching have specified technology in some shade or another as their target focus.

Kraken

As its name implies, cryptocurrency exchange Kraken is ready to be released.

It is the largest crypto exchange in Europe by trading volumes and is considered among of the most trusted crypto exchanges globally. This reputation was further legitimized as it was the first such company to provide cryptocurrency pricing directly to Bloomberg terminals in 2014.

Kraken also became the first crypto exchange to offer spot and futures trading after acquiring British trading firm Crypto Facilities in 2019. That same year it raised a $100 million Series C, which it followed months later with an equity round that raised $13.5 million from its biggest customers that reportedly valued it at $4 billion.

While Kraken’s home page is designed to educate and draw in novice crypto-traders, it also has an account management and trade desk API designed for use by investment banks, hedge funds, and other institutional investors or crypto-related businesses.

With its services available in 190 countries, Kraken has racked up a few first-mover edges, but its management may also be more temperamentally suited to a SPAC path rather than an IPO process. Its last capital raise included only accredited investors or those otherwise exempted and it was therefore not required to register the round with the SEC.

Its co-founder and CEO Jesse Powell has also shown a willingness to be openly prickly with institutions and authorities, comparing New York regulators to an “abusive ex” on Twitter and “North Korea” in a blog post.

So, it seems far more likely that Kraken would prefer to strike a deal with a SPAC team than endure the long and slow autopsy by bankers that comes with the traditional IPO route.

Celsius Network

For smaller SPACs interested in getting into crypto fintech, Celsius is building a crypto-backed lending platform that may be attainable for cheaper than Kraken.

Celsius leverages capital from cryptocurrency depositors to issue loans to users in cash, passing most of the interest back to the individual depositors. It launched in 2018 and has processed about $8.2 billion in loans since then with about 332,000 users on the platform, according to its website.

It has raised $93.8 million through a mix of venture rounds and coin offerings, and its own cryptocurrency CEL has zoomed from a price of about $0.05 in 2018 to over $5 today. Holders gain benefits for using it in transactions on its network, but it is also traded on a number of coin exchanges and has grown to a market cap of about $1.2 billion.

About 27% of this supply is held by Celsius as a treasury-like reserve set to be disbursed as needed. All of these factors make cryptocurrency targets both compelling and challenging for buyers to get their heads around from a valuation standpoint.

As with Kraken, Celsius’ founder and CEO Alex Mashinsky espouses a philosophical commitment to creating alternative financial structures. But, he has also expressed a desire in being publicly listed, telling Mergermarket in 2019 that Celsius was considering a Reg A+ mini-IPO to provide another capital stream and open the company up to a broad base of retail investors.

Circle

That philosophical difference is likely to lead many or most of the largest cryptocurrency businesses to shy away from full integration with the traditional financial ecosystem.

For instance, Binance is the world’s largest crypto exchange with $15.8 billion in daily volume, according to CoinMarketCap. But, its CEO Changpeng Zhao has stated firmly that he is only interested in growing it with a crypto-native path as opposed to competitor Coinbase, which filed for an IPO.

Coinbase’s IPO is likely to take some time as the SEC digests its unfamiliar model and somewhat shaky history of technical problems and user complaints à la Robinhood. It is nonetheless expected to be the first pure-play listed crypto company – that is unless a SPAC beats them to it.

Enter Circle. Boston-based Circle provides the connection between the exchanges and consumer activity with a focus on providing an array of payments solutions, similar to Bakkt. However, on the crypto side, Circle goes far deeper than Bakkt’s wallet offerings.

It has also not shied away from non-crypto funding, having raised about $271 million through three rounds, which included investment by a Goldman Sachs fund and IDG Capital Partners, according to Crunchbase.

Circle now offers VISA-certified card solutions and is now moving into high-yield crypto savings accounts on a wait-list basis. It also sports a B2B platform functioning as a business banking account backed by its unique cryptocurrency USDC, the fastest growing “stablecoin.” It is backed by a basket of US treasury bonds and companies can transact with it on a dollar-for-dollar basis. USDC’s own market cap has grown to about $4.8 billion.

Companies pay $1,000 a month to be hooked up to the service, which charges just $2 per wire transfer, with variable pricing for enterprise clients. This suite also has payroll options and connections to both crypto and traditional capital marketplaces.

It still has features in development but is one of the most mature kids in the crypto payments space and would likely make many friends among retail investors.