The blockchain industry is young and offers a lot of opportunities for companies that are able to position themselves in this turbulent phase. Companies are competing to solidify their place in the market while effectively diversifying and de-risking at the same time. One popular way of doing this is through mergers and acquisitions which is usually only for the wealthier companies in the market.
Mergers and acquisitions serve multiple purposes. A competitor could be “eaten up” by a company so it directly acquires its market share. Some acquire businesses in foreign countries to enter that market more easily. Businesses that do not have anything to do with the core business of the acquiring company can also be purchased if there is potential for synergy or simply to diversify the company holdings.
There have been plenty of acquisitions and mergers in the cryptocurrency industry. A few of the largest deals in recent history are:
In February 2019, Kraken exchange acquired the derivatives trading platform and index provider Crypto Facilities in a deal that was estimated to be worth at least $100 mln. The acquisition enabled customers to trade both futures and spot markets.
Binance announced the acquisition of Coinmarketcap in April of 2020. Although no exact sum was disclosed, it was said to be Binance’s biggest purchase with rumors estimating the value of the deal at around $400 mln. For Binance, the purchase is a good diversification as it acquired a cash flow positive asset with a different business model. But at the same time, it could aid Binance in the future with growing its user base as a lot of traders are using the website to keep track of cryptocurrency prices and available exchanges.
Binance exchange announced the completion of the acquisition of Swipe, the industry’s leading multi-asset digital wallet and Visa debit card platform that allows users to buy, sell, convert and spend cryptocurrencies. By acquiring swipe, Binance aims to make cryptocurrencies more accessible to the masses. The sum of the acquisition was undisclosed.
The acquisition of Chain Inc by Lightyear Corp was announced in September 2018. At the time, Lightyear Corp was known as a universal payments network built around Stellar’s open protocol. Chain built enterprise-level blockchain applications for financial organizations such as Nasdaq and Visa on a private network. The companies merged and continued to operate together under the name “Interstellar”. This acquisition brought enterprises to Stellar’s public blockchain. How much this deal was worth exactly has not been disclosed. Rumors have it ranging $350-500 mln.
M&A deals overview
In the graph below you can see the total number of acquisitions performed by each company in the cryptocurrency industry, originally from a report published by The Block in June of this year.
As is evident from the graph, the larger and popular exchanges are the ones that are focused most on expanding their business. This probably does not come as a surprise since it is well-known that exchanges in the cryptocurrency market are generating a lot of revenue. Take Binance for example. After the third quarter of 2019 it was estimated that Binance reached a cumulative profit of over $1 bln with $183.5 mln in profit during the third quarter of that year alone.
With that much profit, it has plenty of room to look for attractive acquisitions that can add to their service or perhaps even expand to new businesses.
So the exchanges are generating a lot of profit due to the high interest in trading cryptocurrencies. This enables them to expand both organically as well as through acquisitions, allowing them to grow to every corner of the cryptocurrency industry that they want. Therefore, it is likely that the popular exchanges of today will become the cryptocurrency(/blockchain) powerhouses of tomorrow.
Tradition tech interest
Of course, acquisitions are not just being made within the cryptocurrency industry itself. Traditional tech companies such as Facebook, Microsoft and Amazon are also extremely interested in getting involved with blockchain as they too realize how important this technology is becoming. In 2019, Facebook acquired Chainspace as its first acquisition in the blockchain industry and even attempted to launch their own cryptocurrency “Libra”. Expect these major technology companies to both continue acquiring other blockchain firms as well as investing in development in-house.
Speeding up maturing process
The mergers and acquisitions within the cryptocurrency industry are positive for the entire market since this speeds up the maturing process. Companies can benefit from each other’s experience and expertise and use it to improve and grow at a faster rate while making the industry more competitive at the same time.