Adverse selection: Gemini’s logo is seen in this illustration. The firm’s big losses and relatively small share of crypto trading give some reason for pause. — Reuters
NEW YORK: Retail traders are getting a rare chance to make big bets on the billionaire-backed Gemini Space Station Inc before the cryptocurrency exchange makes its trading debut today.
The firm, backed by Cameron and Tyler Winklevoss, plans to allocate as much as 30% of the shares in its initial public offering (IPO) to small-time investors through online brokerage platforms operated by the likes of Robinhood Markets Inc, Futu Holdings Ltd’s Moomoo and Webull Corp, according to an updated filing last Tuesday.
Coincidentally, Robinhood was a pioneer in its own IPO back in 2021, opting for a retail allocation of more than a third of shares, albeit with mixed results for investors.
The challenge for such a large swath of the do-it-yourself crowd getting behind Gemini and a raft of other IPOs is that they must agree to anti-flipping provisions that discourage them from selling shares in the first month, potentially denying them a hefty profit if early enthusiasm wanes before they can sell without penalty.
On paper, Gemini, with its connections to the crypto-friendly Trump administration and user base of digital-asset fanatics is a natural fit for retail investors looking for the next quick profit.
This year has been graced with dramatic debuts from companies like design software firm Figma Inc and stablecoin issuer Circle Internet Group Inc. But Gemini’s big losses and relatively small share of crypto trading give some reason for pause.
“Gemini is a tricky one,” said Craig Stephens of Access IPOs, an information service for ordinary investors seeking to buy into new listings.
“There is that crypto enthusiasm but the company is kind of a second-tier exchange and its revenue is flat.”
When marketing began last week, Gemini had planned to set aside as much as 10% for retail investors, but on Tuesday it opted for a bigger allocation alongside a move to bring in Nasdaq Inc as an investor via a US$50mil private placement.
Gemini’s retail embrace went a step further than rival Bullish, which last month allocated 20% of its IPO to individuals, including self-directed investors and the wealthy clients of large banks, according to its chief executive officer Tom Farley.
Bullish’s strategy of tapping into the retail fervour bolstering crypto names has so far worked. Shares surged 84% to US$68 in the opening session on Aug 13, though they’ve since pulled back to Wednesday’s closing price of US$52.62.
Robinhood, which debuted during 2021’s IPO boom, allocated as much as 35% of its US$2.1bil listing to customers using its IPO Access feature. Though the shares shot above US$70 in the first week, they had tumbled to under US$7 by mid-2022.
A 2025 resurgence has Robinhood trading above US$100 per share, rewarding long-term investors.
There are ample reasons for companies like Gemini to bring retail investors on board, especially those that are enthusiastic about crypto and already know the company because they’re among its customers.
“Would you rather have a shareholder base full of crypto enthusiasts or a bunch of hedge fund mercenaries who will short your stock the moment they get a whiff of bad news?” said James Angel, a finance professor at Georgetown University.
Retail investors are also typically prepared to pay more than institutional investors, especially for crypto firms, and may be buying shares that better-informed institutional investors have passed on, he said.
“The question is whether this is a hot IPO or are the banks having trouble selling it and they are dumping it on retail,” Angel said. “Is there an adverse selection problem here? This is always a problem for smaller investors.”
Though greater retail access is a welcome development for long-time advocates, Gemini may be taking advantage of the price-insensitive nature of retail demand.
On the same day it decided to allocate more stock to retail, Gemini also materially raised its IPO marketing range to between US$24 and US$26 per share, up from US$17 to US$19.
Still, getting stock at the IPO price rather than having to chase the shares at potentially higher prices once they begin trading offers some protection for small investors, Access IPOs’ Stephens said. — Bloomberg
