SpaceX IPO: Crypto exchanges cash in on SpaceX frenzy with pre-IPO derivatives
Billions of dollars have flowed into instruments dubbed “pre-IPO perpetual futures“, which have no direct link to the underlying shares but are priced with reference to SpaceX’s latest disclosed pre-IPO valuation.
These types of derivatives, known as “perps”, are already used to bet on cryptocurrency price moves. They roll over indefinitely and allow investors to borrow in order to make bigger bets.
The popularity of new pre-IPO perps – which trade on exchanges including Binance, Coinbase and Hyperliquid – has intensified the clash between crypto and Wall Street ahead of a wave of blockbuster IPOs set to also include AI giants Anthropic and OpenAI.
News that U.S. regulators would approve perps betting on cryptocurrencies was enough to knock the shares of New York Stock Exchange parent Intercontinental Exchange earlier this week, as investors weighed up what they saw as a long-term competitive threat for incumbent bourses.
The selloff continued into the next session, in part due to fear among investors that the contracts would be extended to equities.
‘MIND-BOGGLING’ VOLUMES
Global markets are bracing for the IPO of Elon Musk’s SpaceX, which aims to raise a record $75 billion to fund expansion as the world’s richest man pursues long-term ambitions, including colonising Mars and building data centres in space.
There was around $3.2 billion in trading volume and $390 million in open interest on SpaceX pre-IPO perps from May 17 to Wednesday, according to data provider Talos, which included eight exchanges in its figures.
Binance said its SpaceX pre-IPO perps saw $2.1 billion in trading volume in 18 days, but declined to break this down by region.
“This is obviously aimed at a crypto-native, crypto-friendly audience that are looking to obtain high-leverage bets on specific market movements,” said Philippe Noeltner, a lawyer at A&O Shearman, calling the volumes “mind-boggling”.
Crypto perps often offer high degrees of leverage – as much as 100-to-1 – although for the recently launched pre-IPO perps, the leverage is usually capped at 3x to 5x, analysts said.
Crypto exchanges typically make money from the products by market-making and charging fees to buyers.
‘THE HYPER-GAMBLER-ISATION OF EVERYTHING’
Proponents say pre-IPO perpetuals – which are generally not available to U.S. investors – are a tool for price discovery and help more people get access to the U.S. stock market’s gains. But critics say they are risky as they have low liquidity, high volatility and – unlike tokenised stocks – are not pegged to any underlying asset. Once the stock floats, the price of the instrument is adjusted to reflect the share price, though details vary from exchange to exchange. The price of SpaceX pre-IPO perps has fallen from above $200 to around $160 in less than a month, according to Kaiko price data. SpaceX shares are due to price at $135 apiece.
“This pre-IPO perpetual isn’t really anchored towards anything other than speculation,” said Kaiko analyst Laurens Fraussen.
“The pre-IPO thing is, alongside prediction markets, a good example of where the world is heading… it’s like the hyper-gambler-isation of everything.”
The World Federation of Exchanges, an industry body which represents stock exchanges, said that buyers might think they are getting an asset that comes with the guardrails of listed products, and that it was hard to be sure how robust the price formation would be.
“These are fundamental principles and we will work this issue into our dialogue with regulators,” a WFE spokesperson told Reuters via email.
SPACEX FRENZY MEETS CRYPTO
The SpaceX IPO and crypto are both “exciting stories”, said Alex Edman, a London Business School professor who researches investor psychology, cautioning that people should ensure they understand what they are buying.
“With SpaceX, investors may have done a little bit of research and conclude that space exploration is the future. With crypto, they may learn about potential use cases. But neither tells you what the asset is actually worth.”
Little is known about who or what is driving the volumes of pre-IPO perps. Coinbase and Binance declined to comment on how many users had bought SpaceX pre-IPO perps, and data provider Talos said it was not possible to determine from public data. “It’s also very difficult to know who’s active in these markets, whether it’s your retail trader punting £10 or a proprietary trading desk of a hedge fund taking a position,” said A&O Shearman’s Noeltner.
“It’s better not to assume that these are only retail traders.”
