Be wary with Crypto-SPAC transactions. They could never close

Be wary with Crypto-SPAC transactions. They could never close

Be wary with Crypto-SPAC transactions. They could never close

Crypto firms looking to go public via a special purpose acquisition company, or SPAC, may be running out of time.

SPACs, often known as blank-check corporations, accept capital from investors and then hunt for an acquisition target to take public via their corporate wrapper. SPAC issuance increased dramatically in 2020 and 2021, with 861 SPACs issuing shares. However, just 70 SPACs have gone public this year. And other high-profile ones have failed to find a buyer, like Bill Ackman's Pershing Square Tontine Holdings (ticker: PSTH).

The SPAC crisis is now affecting crypto firms. Barron's identified more than a dozen cryptocurrency firms that have attempted to combine with a SPAC but appear to be on the sidelines.

Circle Internet Financial, a supporter of the "stablecoin" USD Coin, is one of the most well-known names. Since July 8, 2021, Circle has been attempting to go public through a SPAC named Concord Acquisition (CND). According to a regulatory filing on February 16, the deal was valued at $9 billion. The acquisition must be approved by the Securities and Exchange Commission by December 10, 2022, though the timeframe may be extended.

"We appreciate the SEC's thoroughness as they manage pretty innovative enterprises that seek the trust, transparency, and responsibility that come with being a public company," a Circle representative told Barron's in an email.

A crypto/SPAC agreement between eToro Group, an Israeli online brokerage, and FinTech Acquisition Corp. V (FTCV), a SPAC backed by renowned banker Betsy Cohen, is also on hold. The firms called off their merger in early July after failing to meet the transaction's June 30 deadline.

According to a person familiar with the issue, one of the reasons the sale failed was a failure to obtain SEC permission. "[eToro] simply ran out of time," the individual explained.

eToro did not respond. FinTech Acquisition Corp. V did not respond to inquiries for comment.

Hundreds of more crypto/SPAC transactions have still to be completed. Apifiny Asset Network and Coincheck are crypto exchanges; Bitdeer Technologies Holding, Griid Infrastructure, Finfront Holding (Bitfufu) and Prime Blockchain are crypto mining businesses; TradeStation Group is an online broker; and Infinite Assets is a platform for trading nonfungible tokens, or NFTs.

Bullish, a cryptocurrency exchange, and Nukkleus, a crypto financial services company, are also in limbo. Bullish is attempting to combine with Far Peak Acquisition (FPAC), whilst Nukkleus (NUKK) is attempting to merge with Brilliant Acquisition (BRLI). Nukkleus is currently traded over the counter and intends to list on the Nasdaq once it unites with the SPAC.

Bullish has not responded to calls for comment. A representative for Nukkleus said the merger with Brilliant Acquisition is anticipated to finalize in August.

Only one cryptocurrency firm, blockchain payments provider Roxe Holding, is looking to combine with a SPAC that will go public in 2022.

"The clock is ticking for a lot of SPAC sponsors to locate an acquisition candidate before they have to return investors' money," said Columbia Law School professor Eric Talley, who specializes in corporate and transactional law.

According to Evan Ratner, president of Levin Capital Strategies, a New York money-management business that has invested in SPACs, every SPAC contract has a completion date, but SPACs can extend the deadlines awaiting shareholder approval. "Typically, it's three months in exchange for a modest rise in trust value," Ratner added, referring to the amount of money investors may withdraw from the SPAC.

Under certain conditions, investors are normally entitled to their money back at $10 per share if a SPAC fails to locate an acquisition target, consummate a merger, or obtain SEC approval.

Crypto/SPAC deal reviews may take six months or more, according to Ratner, significantly longer than the SEC typically takes to approve non-SPAC merger mergers. "Because of the newness and sophisticated nature of this domain, I would expect evaluations to take lengthier," he added.

"It's fair to say that completing a crypto SPAC merger today is more difficult than it was a year ago," said Dan Kahan, a lawyer at legal firm King & Spalding that handles crypto firms.

Since 2020, SPACs have been on the SEC's radar, and the commission has tried to strengthen its enforcement of the crypto industry. Furthermore, there are many unanswered uncertainties surrounding crypto regulation, jurisdiction—the SEC or the CFTC—and the accounting method for digital assets, according to Kahan.

A spokesperson for the SEC declined to comment.

Fintech Acquisition Corp V, which called off its deal with eToro; Far Peak Acquisition Corp, which is attempting to merge with Bullish; Circle's merger partner, Concord Acquisition; and Quantum FinTech Acquisition (QFTA), which is attempting to merge with TradeStation are all trading slightly below $10.

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