A growing number of cryptocurrency exchanges are taking the “backdoor” route to becoming publicly listed in countries all around the world, a new report from Reuters says.

What does this mean? Rather than going through the process of applying for public listing, crypto exchanges are choosing to buy companies that are already listed and use them as a vehicle to raise their own money. These kinds of purchases, also known as “reverse mergers,” allow companies to have access to mainstream capital without being subject to the regulatory scrutiny of the IPO application process.

Will This Process Continue to Work?

The most recent example of this is Voyager Digital, a US-based cryptocurrency broker-dealer that got a “backdoor” listing on the Toronto-based Venture Exchange by purchasing UC Resources, a Vancouver-mineral exploration firm.

In January, OKC Holdings, a company controlled by Star Xu (founder of cryptocurrency exchange OKCoin), purchased a 60.5 percent share in Hong Kong-listed construction firm LEAP Holdings for the same purpose. South Korean crypto exchange Bithumb announced plans to purchase US-listed company Blockchain Industries for the same purpose just days later. Additionally, Huobi purchased a majority stake in Hong Kong-listed Pantronics Holdings.

However, this “back door” may not be open for much longer. “It’s possible a crypto exchange could incubate a new crypto business inside a Hong Kong-listed company, maintain the listed company’s existing operations, and not be treated as a new IPO, but it is a very difficult tightrope to walk,” a person familiar with the listing committee’s process told Reuters.

Investors May Be More Willing to Put Money into Crypto If “Traditional” Financial Institutions Offer Crypto-Related Products and Options

The drive to become publicly listed apparently comes from a desire to access a wider pool of funding.

“Many (cryptocurrency) exchanges have put a lot of strategic effort into trying to legitimize their operations and their reputations, and for some there’s an assumption that having some exposure to the traditional public market will help,” said managing partner at digital asset investment firm Ledger Capital, Fei Ding’an, to Reuters.

There is some evidence that this may indeed be the case–a recent study by social trading platform eToro revealed that at the very least, millennial investors who don’t currently have any crypto holdings are very interested in cryptocurrency investment offerings from regulated institutions.

“While both crypto enthusiasts and millennials alike seem to distrust monolithic institutions like traditional exchanges and the largest investment banks that play in them, there’s a great deal of demand from younger investors for offerings from firms that are more recognizable, aren’t perceived to be bad actors and have an infrastructure that can provide personalized and tailored advice,” explained Guy Hirsch, Managing Director of eToro U.S.

The views and opinions expressed in the article Crypto Exchanges Bypass IPO Apps by Buying Pre-Listed Companies do not reflect that of 48coins.com nor of its originally published source. Article does not constitute financial advice. Proceed with caution and always do your own research.

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