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Report%3A+Crypto+Exchanges+using+%22+Reverse+Merger%22+Technique+to+avoid+checks

Report: Crypto Exchanges using " Reverse Merger" Technique to avoid checks


According to a recent Reuters report, many cryptocurrency exchanges are using the backdoor approach to penetrate crypto markets in certain regions. They try to make a successful entry by by purchasing a share in a public company which has been previously listed. This in turn helps them avoid regulations and gain mainstream approval. Additionally, the company gives the exchange a promise to help them gain acceptance. 

In January, OKC Holdings, founder of crypto-exchange OKCoin, purchased 60.5 percent of LEAP Holdings, a Hong Kong-listed construction firm, for HK$484 million ($61.69 million).Also recently, U.S. crypto broker-dealer Voyager Digital managed to get  a “backdoor” listing on Toronto’s Venture Exchange. This was after it gained control of mineral exploration firm UC Resources.

A move to Escape Regulations

Media houses also highlighted that these purchases also known as reverse mergers enable companies to offer their share to public. Subsequently, the buying company avoids check which would have been done during an Initial Public Offering( IP0 ). In addition to being subject to regulations by financial regulators. 

Fei Ding’an, Managing partner at Ledger Capital, a digital asset firm said:

“Many cryptocurrency exchanges have worked earnestly and put a lot of strategic efforts in hope of legitimizing their operations and reputations. As a result, there is an assumption that some exposure to the traditional public market will help.“ 

Japan’s FSA Leading the Movement 

It is worth noting that  Japan’s Financial Services Agency (FSA) is the sole regulator which has led the movement for regulating digital assets. Additionally, the same can be considered for the regulations guiding the exchanges on where and hows of trading assets. Moreover, if  a company has an intent to offer its services in the crypto/blockchain arena, it must strictly adhere to “Under the revised Payment Services Act” after registering with FSA. 

On December 28th Japan’s FSA revealed that a whooping 190 companies showed interest in establishing crypto-related venture firms in the East Asian country.  On January 10th Thai Securities and Exchange Commission (SEC) scrutinized seven cryptocurrency companies. Out of these four were licensed, two were rejected and one is still undergoing a review process. 

The cryptocurrency exchanges which got approved were  Bitkub Online Co. Ltd. (Bitkub), Bitcoin Exchange Co. Ltd. (Bx), and Satang Corporation (Satang Pro).  However, Cash2coin Co. Ltd. and  Southeast Asia Digital Exchange Co. Ltd. (Seadex) faced rejection. The rejection lead to discontinuation of these services in their previously operating regions.