- Investment funds and crypto exchanges are the most active acquirers
- The market is moving from obscure to strategic
- Exchanges in the lead with Coinbase being the “M&A Powerhouse”
- Mining companies largely absent while no decentralized M&A yet
While the crypto industry is still in its infancy, the latest report by TokenData says 350 acquisitions have been made since 2013. Mergers and Acquisitions are used as a tool to gain regulatory approval in certain jurisdictions or certain products.
The focus of these M&As have been acqui-hires that suit nascent industries, consolidation of larger and more mature businesses, and diversification.
The Market is Moving from Obscure to Strategic
M&A activity peaked in 2018 with 160 deals, with 90-100 deals estimated for 2019.
The deals in the past 6 years amount to a total of $4 billion, with a big chunk, $2.8 billion belonging to 2018. As evident from the 2018 figure, M&A activity is positively correlated to crypto prices.
The year of crypto winter saw many acquisitions consisting of reverse mergers and defunct non-crypto companies turning crypto investment companies.
Though a smaller figure in 2019 at $700 million, this year we saw Facebook acquiring for its Libra project and the consolidation in custody space, such as Coinbase Xapo custody. Also, the year has been all about strategic M&A unlike the obscure financial M&A of 2018.
Though $4 billion seems impressive, it is small in comparison to the total network valuation of the crypto network at over $200 billion and M&A value in other tech sectors.
Exchanges in the Lead with Coinbase being the Powerhouse
In the crypto industry, investment funds and exchanges are dominating the M&A, representing more than half of all deal activity and value.
This is because “trading and speculation are crypto’s first killer-app” and rising prices and volatility mainly benefits exchanges, giving them the necessary cash reserves and networks for acquisitions.
So, it comes as no surprise that Coinbase is the “M&A powerhouse” with 16 acquisitions including $100 million of Earn and $55 million of Xapo.
Coinbase is followed by Kraken and Coinsquare that engaged in 7 and 5 deals respectively. As for Binance, despite its size and growth, it only made 3 public acquisitions. But it has significant investments in other crypto companies and partnerships, that have the same effect as the M&A.
Mining Companies largely Absent while No Decentralized M&A yet
Crypto infrastructure has also been effectively scoring 40 acquisitions but while mining companies were “very active” before 2018 correction, they have been “largely absent’ this year.
As for non-crypto companies acquiring crypto startups, the purpose is to increase the industry presence which is talent-focused.
Decentralized M&A in a pure form hasn’t happened yet because many cryptocurrency networks are either still in the early development stage or run by centralized companies and foundations.
However, acquisitions have been made to make the transition from a centralized entity to a more decentralized one. 2019 also saw the rise of token mergers, which the report says “could be an important mechanism in Decentralized M&A.”
Because of the decentralized nature, TokenData says it could look like protocol mergers or hostile token takeovers.