At first appearance, the bitcoin market appears to be dormant. Since the beginning of the year, exchange valuations for key coins have been off by more than 50%. The initial coin offering (ICO) market has cooled after establishing records, and investment has plunged to all-time lows.
However, one segment of the cryptocurrency market is thriving.
M&A activity in cryptocurrencies has increased by more than 200 percent, according to statistics from JMP Securities, an investment banking and asset management firm. There were 47 agreements involving blockchain and cryptocurrency-related ventures last year. This year, that figure has risen to 115, with JMP forecasting a total of 145 acquisitions until the end of the year. M&A transactions are typically cross-border and have an average value of $100 million.
Why is there such a surge in cryptocurrency mergers and acquisitions?
Greater understanding of bitcoin and blockchain technologies has sparked a rise in activity.
As cryptocurrency and blockchain technologies have received public attention in the last year, incumbent crypto players have used acquisitions to accelerate their growth goals. To broaden its product offerings, Binance, the world’s largest cryptocurrency exchange by trading volume, purchased Trustwallet. Similarly, Coinbase, the largest exchange in North America, purchased Earn.com, a crypto social network, for its workforce.
Established players and private equity firms that invest in cryptocurrencies and blockchain have varied reasons for doing so. Organizations are buying startups and companies to try to get a head start in the market by acquiring technologies and products, according to Satya Bajpai, head of Blockchain and Digital Assets Banking at JMP Securities. “This industry is like a treadmill; the only way to keep up is to keep running by investing in new technologies,” he explained. Small businesses will be picked up before they develop their products due to the treadmill’s quick speed. “As soon as a company becomes intriguing, it gets purchased – the deal amount may remain small, but the volume of deals will increase since it is the most viable and fastest method to expand in this climate,” Bajpai explained.
A Discounted Appraisal
M&A activity is also showing an interesting inverse relationship with bitcoin markets. Several entrepreneurs and early-stage cryptocurrency organizations took advantage of the end-of-year ICO excitement and crypto market growth to launch token-based ventures.
Their intentions have been thrown off by bitcoin’s strength and effect on crypto marketplaces. Since the beginning of this year, the original cryptocurrency has plummeted to new lows, dragging cryptocurrency markets down with it. As a result, tokens listed on cryptocurrency exchanges have also collapsed in value, allowing investors and acquisition firms to jump in and buy them at bargain prices.
In crypto M&A, according to Bajpai of JMP Securities, there is a mispricing of assets. “The value of the token remains tied to bitcoin, even for fantastic enterprises,” he said, “which can create a good opportunity for strategic acquirers.”