Without question, one of the biggest motifs of 2021 is the dramatic rise of Bitcoin and the cryptocurrency complex. Garnering the extreme ends of the opinion spectrum, from the future of money to being “disgusting and contrary to the interests of civilization,” according to Charlie Munger, you might not own BTC but you almost surely have something to say about it.
Despite the many controversies that cryptos generate, the innovations sparking from the underlying blockchain technology are undeniable. In the pre-blockchain era, intermediaries answering to centralized authorities brokered transactions between 2 parties. However, the existence of middlemen made those transactions cumbersome and expensive. What Bitcoin proved with the blockchain is decentralization; that is, peer-to-peer (P2P) transactions can finally occur independently of an oversight agency.
Soon, other mechanisms traditionally levered to intermediaries, such as market making (or the provision of liquidity to facilitate asset trading), dominated business headlines. Falling under the broad category of decentralized finance (DeFi), blockchain-based projects catalyzed an entire digital ecosystem, all outside centralized governmental control.
Still, cryptocurrencies themselves, being tied to a novel paradigm, frequently incur volatility. That’s why many investors seek publicly traded companies to gain secondhand exposure to digital assets. Therefore, the latest initial public offering (IPO) of Crypto 1 Acquisition Corp may draw significant interest.
When Is the Crypto 1 Acquisition IPO Date?
Although the spate of private enterprises seeking the warm embrace of the capital market stormed out of the gate at the beginning of 2021, the momentum shows no sign of fading. An encouraging sign for Crypto 1 Acquisition, the blockchain-centric corporation inked its debut on the IPO calendar on the morning of Dec. 7, 2021.
Under the terms of the deal, the Miami, Florida-based company distributed 20 million shares at an initial offering price of $10, and “each unit consists of one share of common stock and three-quarters of a warrant, exercisable at $11.50.” B. Riley Securities represented the sole bookrunner for the IPO. Shares listed on the Nasdaq exchange under the ticker symbol DAOOU.
As you probably guessed from the corporate name, Crypto 1 Acquisition is a special purpose acquisition company (SPAC). Also known as a blank-check firm or shell company, a SPAC features no underlying operations. Instead, SPAC sponsors turn to the capital market, launching an IPO to raise funds to identify and merge with a viable privately held enterprise.
Regarding Crypto 1 specifically, management mentioned on its disclosure with the U.S. Securities and Exchange Commission (SEC) that it intends to focus on the “acquisition of a significant digital assets and cryptocurrency exchange, payment system and/or related financial services company, including wallets, lending and decentralized finance.”
On one hand, the timing of this IPO is an intriguing one. While recently demonstrating its volatility because of news about the omicron variant of the SARS-CoV-2 virus, the crypto complex enjoyed an earthshattering year in 2021. At the beginning of January, Bitcoin was trading hands at little over $29,000. Earlier in November, BTC was screaming toward the $70,000 level before incurring a correction.
Still, investors need to consider the other side of the coin. At time of writing, Bitcoin is trading a few hundred dollars above the $51,000 level, roughly representing a 25% loss in less than a 1-month period. Many if not most retail investors cannot absorb such scale of crimson ink at frequency lest they incur serious financial damage.
Also, prospective participants of DAOOU stock must note that equity shares of blockchain-related companies don’t always correlate with the performance of Bitcoin and other crypto assets. For instance, crypto-mining firm Canaan Inc. (NASDAQ: CAN), which enjoyed dramatic profitability earlier in the year, succumbed to an extended downturn. On a year-to-date basis, CAN is down 3%.
Crypto 1 Acquisition Financial History
Because Crypto 1 has no business of its own, it naturally features a limited financial profile. With its $200 million gross raise before deducting expenses related to the IPO, the company commands a market value of $250 million. Further, its disclosure document with the SEC provides some nuances regarding management’s thought process.
Specifically, Crypto 1 states that it will not target entities “incorporated, organized or have their principal business operations in China or Hong Kong.” Instead, management expressed interest in crypto exchanges serving Asian countries excluding China, such as South Korea, Japan, Singapore and the Philippines. As well, executives will consider Europe, North America and Latin America.
According to the SPAC’s prospectus, the “cryptocurrency market is valued between USD 1.8 and 2.8 trillion dollars as of November 2021. The exchanges and financial processors are the biggest winners in this space by earning revenue from deposit and withdrawal fees, as well as sales of cryptocurrencies. The top 5 exchanges had a combined revenue of USD 2.2 billion in 2019 and an average operating margin of 32%.”
Certainly, the remarkable success of crypto exchanges like Coinbase Global Inc. (NASDAQ: COIN) — which launched its IPO earlier this year — may bolster investor confidence in DAOOU stock. In the first 3 quarters of 2021, Coinbase generated revenue of $5.34 billion, a more than fourfold increase over 2020’s full-year result.
On the surface, this robust surge in top-line sales is something that you want to see in technology-centric growth stocks. But on the other end of the fence, Coinbase is largely dependent on investor sentiment. Back in 2019, when relatively few people were discussing cryptocurrencies, the popular wallet and trading service only printed $534 million on the top line.
Therefore, anybody acquiring DAOOU stock must gird themselves for a feast-or-famine performance matrix. That is, when cryptos are soaring to the heavens, very few (if any) asset classes can match their profitability. But the downside is the sector’s frequent bearish cycles. Absorb too many steep losses, and you will likely incur an opportunity cost while you watch traditional assets march forward.
Although it’s a children’s tale, The Tortoise and the Hare reminds everyone that fast and furious doesn’t always win the race.
Crypto 1 Acquisition Potential
Although a SPAC is generally a risky vehicle because of its intrinsically dilutive structure, one of its key benefits is that it helps deliver opportunities that retail investors might not ordinarily access. Since SPACs undergo a less-onerous vetting process to the capital market — which admittedly is another risk factor — prospective participants simply have more entrees on the table.
But with DAOOU stock, it’s not just about the underlying crypto exposure that imbues the SPAC with high potential. Rather, management expressed interest in Southeast Asian countries, which offers a compelling mix of powerful demographic trends and rapidity of digital and connectivity integrations. With so much tech vibrancy in the region, cryptos appear poised to take off, boosting confidence that Crypto 1 can complete a business combination.
Another overlooked factor supporting DAOOU stock is that buying equity shares in crypto-related enterprises is, all other things being equal, an administratively safer option than purchasing cryptos directly. As The New York Times reported, tragically silly oversights like lost or forgotten passwords can potentially deny you a fortune.
Still, the recent selloff in the crypto market should remind everyone how risky this sector is. That’s why you should only invest a tiny portion of your portfolio in crypto or crypto-related stocks.
How to Buy Crypto 1 Acquisition IPO (DAOOU) Stock
With DAOOU shares hitting the market, interested investors must acquire shares at the open, an easy process if you know how to buy stocks. If not, just follow the steps below.
Step 1: Pick a brokerage.
As modern brokerages compete on similar financial incentives, you can advantage this dynamic by narrowing your list of best brokers to platforms that ideally suit your needs.
Step 2: Decide how many shares you want.
All IPOs carry risk, especially those tied to cryptocurrencies. To help mitigate downside action, choose a balanced share count.
Step 3: Choose your order type.
Before trading, learn these market concepts.
- Bid: The buyer’s best offer for a stock.
- Ask: The seller’s lowest acceptable price.
- Spread: The difference between the bid-ask price, the spread indicates market risk as this is also the profit margin for market makers.
- Limit order: Buy or sell requests at a predetermined price, limit orders provide transparency but no execution guarantees.
- Market order: Market orders guarantee fulfillment but only at the current rate.
- Stop-loss order: Stop-loss orders automatically exit your position at either a predetermined price or anything lower.
- Stop-limit order: Stop-limit orders only leave positions at a specified price, but they also carry non-fulfillment risks.
Step 4: Execute your trade.
Follow these steps to execute a market order:
- Select your action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the Buy (or Sell) button.
Follow the same sequence for limit orders (but include your execution price).
DAOUU Restrictions for Retail Investors
Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.
DAOUU Pre-IPO
Although DAOUU is no longer a pre-IPO opportunity, those interested in buying select new shares at their initial offering price should consider opening an account with Freedom Finance.
A Cryptic Crypto Opportunity
Thanks to Bitcoin extracting respect out of mainstream media establishments, cryptocurrency-related investments have been all the rage this year. However, it’s also possible to have too much of a good thing. Anyone interested in DAOOU stock should carefully weigh the risks and rewards of digital assets before proceeding.
Disclosure: The author holds a long position in BTC.
About Joshua Enomoto
His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.