Regulatory shifts are creating new opportunities in exchange-traded products and public capital markets for digital asset companies.
Topics discussed:
- Pro-crypto administration is creating market opportunities
- Crypto ETFs beyond Bitcoin and Ethereum
- Bitcoin reserve strategy and convertible note advantages
- Crypto company IPOs
- SEC’s evolving guidance for crypto offerings
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Content related to this discussion:
Transcript
The following transcript of this discussion was edited for clarity.
Karen Ubell: Hello everyone. This is New Directions, a series of discussions from Goodwin Procter about the Trump administration’s first 100 days in office and what we’re watching in the coming months. I’m Karen Ubell, co-chair of Goodwin’s Digital Currency & Blockchain practice.
I’m here today with my partners Mitzi Chang, co-chair of Goodwin’s Fintech and Digital Currency & Blockchain practices, and Jeremy Senderowicz and John Servidio, partners in Goodwin’s New York office.
We’re here to talk a little bit about the administration’s pro-crypto positioning and how that has cleared the path for additional opportunities for digital assets and crypto-focused businesses to seek out opportunities in the US capital markets. We certainly have seen the administration come in as promised during the campaign with a very pro-crypto stance.
They’ve embraced the crypto industry and blockchain technology, creating opportunities for blockchain and crypto companies to potentially explore broader adoption and use cases.
This has increased interest from TradFi — traditional finance — entities that have previously been cautious to explore digital assets or may informally have been prohibited from doing so by their regulators. They have also created opportunities for crypto companies in the public capital markets.
We’re not going to go back through all of the different executive orders necessarily, but we will discuss what we’re seeing so far and what we expect and hope to see in the future.
So, Jeremy, 2024 saw the approval of the Bitcoin and Ethereum ETFs. Can you tell us about the activity with respect to the new exchange-traded products that we’re starting to see and expect to see?
Jeremy Senderowicz: Thanks, Karen. Since last summer, when filings began in anticipation of a possible change in administration, there have been over 60 filings for new funds that would be based on crypto in one form or another. A large number of those filings would be for spot crypto funds, where the funds would hold the coins directly. And those filings branch out well beyond Bitcoin and Ether to a pretty wide range of coins.
Other filings would be for funds that wouldn’t hold crypto directly but would instead be based on futures contracts or other derivatives based on the underlying coins in question.
The timing remains to be seen in terms of when these filings might be approved. It’s unclear, even with the new pro-crypto regime in place at the Securities and Exchange Commission, whether all of these filings would be approved and whether all these funds will launch.
For example, a number of the funds that would be based on futures contracts for certain coins would require those futures contracts to be created and commence trading on a futures exchange before the funds can launch. Right now, the only futures contracts that are trading on regulated futures exchanges are Bitcoin and Ether — and just recently, Solana futures began to trade. Even if the SEC is inclined to approve some of the other funds, the futures-based funds might require the creation of new underlying futures contracts before they can commence trading.
Even for the spot products that the SEC is considering, it will be very interesting to see how the SEC views the reliability of the underlying spot markets. In the past, the SEC, when it was forced to approve the Bitcoin and Ether ETFs, based its approval on the fact that those markets had regulated futures markets of sufficient size. They felt they could approve those products even though the spot markets for the coins in question were not directly regulated.
The SEC has raised the question of whether or not a futures market is required to approve additional spot crypto ETFs and, if not, what other measures they might use to indicate that the underlying markets are resistant to potential manipulation. This was something that was specifically called out in the missive set out by the Crypto Task Force titled “There Must Be Some Way Out of Here.”
Both the timing and the scope of what the SEC will approve is still in some degree of flux, but I think there is some wide consensus that some number of these new filings will in fact be approved. Hopefully at some point this year we will see a wide expansion in the amount of crypto ETFs that are in the market.
Karen Ubell: That sounds exciting for the industry and quite a change from where we were last year at this time with just the first crypto ETF and the Bitcoin ETF being approved. John, switching gears a little bit, with the success of Strategy, formerly known as MicroStrategy, and their Bitcoin balance sheet play, which we also saw to some extent from other issuers: Do you think more public companies will start to adopt the strategy of accessing low-cost capital? What are you seeing in this space?
John Servidio: The last quarter of 2024 and the first quarter of 2025 have been revolutionary in terms of how public companies can raise capital, especially when or if their reserve currency is Bitcoin. Or maybe they pivot and adopt cryptocurrency as a reserve capital, which helps them raise capital on a very cheap basis.
First of all, in 2024, we saw the publicly traded Bitcoin miners raise about $5.2 billion of public capital, primarily through convertible note offerings. Those included MARA, Core Scientific Blockstream, and Bitdeer. MARA is most notable because it keeps all of the Bitcoin that it mines, which helped it achieve very attractive convertible bond financing.
Probably the most notable or famous issuer of convertible notes is Strategy, which has done about eight convertible notes so far — the most recent of which priced at a zero coupon, which is basically free money from the market, because of the attractiveness of its holdings of Bitcoin.
Why are convertible notes so attractive for holders of Bitcoin or potentially of other digital assets? A convertible note is basically a plain vanilla bond plus a call option. The value of the call option comes from volatility. Typically, that comes from the volatility of stock. In the case of Bitcoin miners, it comes from the volatility of Bitcoin. Because of that volatility, holders of these notes can hedge themselves by selling high and buying low, which is a convertible arbitrage strategy. That’s why issuers like Strategy are able to get 0% coupons on their convertible notes with very high conversion premiums.
As a result, Strategy so far has raised about $8 billion in capital just through convertible notes, and it is also using convertible preferred notes to raise capital from different holders that benefit from the same volatility of their Bitcoin holdings.
Because of the success of the Bitcoin miners, and most notably Strategy, the most exciting thing we’ve seen recently is other companies pivot their strategy from whatever it is that they did before. For example, Strategy was a tech company that made software. Now we’re seeing companies such as life science companies that are pivoting to using Bitcoin as their reserve capital and raising convertible bonds on that basis.
For example, Semler Scientific recently raised $100 million of convertible notes after announcing that in addition to their legacy life science practice of treating cardiovascular disease, the company is now going to invest in Bitcoin. Because of that, they were able to raise $100 million at 4.25% coupon at a five-year term — very attractive — and their stock has done well.
Now we are also seeing other companies, sponsors, or crypto native investors either approaching private companies to take them public or approaching other public companies to potentially incorporate a similar strategy as Semler Scientific and Strategy — to use either Bitcoin or other digital assets as a reserve currency and go to public markets to raise capital through convertible bonds. In addition to that, they can raise capital other ways, such as at the market offering, so they can continue to raise capital to acquire more digital assets.
In sum, the last six months have been revolutionary in capital markets and revolutionary for the digital asset industries as we see the convergence of public capital markets and digital assets, which we’d hoped to see for years. Now it’s finally happening.
Karen Ubell: Mitzi, on that note, we saw that Circle flipped its IPO registration statement public recently. Media is widely speculating that other centralized crypto companies will soon follow. How have the administration’s new policies opened this up as a real strategic possibility? And what do you think we should expect on that front?
Mitzi Chang: Thanks, Karen. I agree with John. I think it is a very, very exciting time for capital markets in general but also with respect to crypto and crypto adjacent companies, just given the openness and friendliness that I think the administration has really exhibited in the last 100 days.
One thing I’d like to note is that the Division of Corporation Finance did issue a statement on April 10 labeled “Offerings and Registrations of Securities in the Crypto Asset Markets.” This was sort of their disclosure statements with respect to how they think about offerings and registrations under the “34 Act” and the “33 Act” with respect to companies that might be dealing with what we call Regulation S-K in terms of disclosure requirements in those registration statements.
This is the first time they’ve really done that. I think it does signal the fact that they expect there will be more registration statements under the “33 Act,” as well as additional disclosures under the “34 Act.”
If you look at the statement, what is interesting, though, is a note about financial statements. So to go public, later-stage companies have to do a lot of things. That has not changed. Probably, I would say there are three big items that later-stage companies do need to think about in any industry. These things are time-consuming and reflect the maturity of those companies.
The first is financial statements. Financial statements need to be audited. You need at least two years of that. And that takes time and a lot of expense to put together.
You also need independent board members and committees. It depends on whether you want to be on NYSE or NASDAQ. They’re fairly similar, but you need different types of independent board members and committees.
There’s also internal control over financial reporting and certain internal aspects of a company that later-stage companies will need to be able to commit to as part of the going public process. So with Circle, they flipped public, but that was after at least several months of disclosures and filings and sort of going back and forth at the SEC on comments.
It’s a really exciting time. I do expect that there will be other companies going public, hopefully later this year and beyond, given that the administration has signaled that it is time for the US to do business here in terms of crypto.
Karen Ubell: Yes, I think that the big difference we’re hearing from a lot of the companies that are engaging with the SEC — and I think it’s obvious with the Crypto Task Force and other pieces — is that you’re now finding an SEC staff that is more willing to engage and provide guidance instead of shutting things down and trying to prevent things from coming to market. It’s a really welcome change to be able to work with the regulator to take advantage of these really exciting opportunities.
With that, we’ll wrap it up. Certainly very exciting times across the crypto industry as we see the Trump administration continue to find new ways to support the growth and the development of blockchain and crypto industries here in the United States, as well as returning that innovation and that value to US persons and US markets. So we’re really excited to see how that will play out even further in the public capital markets in addition to all the other opportunities that have been created.
Thanks so much to Jeremy, John, and Mitzi for joining me. To those listening, please feel free to let us know what you think and what’s on your radar. In the meantime, be sure to check out our other discussions in the New Directions series for more insights on the administration’s evolving policies, what we’ve seen in the first 100 days, and what we expect to see in the future. Thanks for listening.
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