Crypto and Traditional Finance To Merge Via M&As As Coinbas | Blockchain Progress
Crypto and Traditional Finance To Merge Via M&As
As Coinbase has already gone public, and eToro, Kraken are also planning to list their shares, we can also expect to see an increase in acquisition activity in the coming months.
While it’s expected that mergers and acquisitions are set to increase this year, what isn’t so clear is who will be initiating such moves. Will traditional finance (or fintech) companies be acquiring crypto firms, or will it be the other way around?
It’s worth pointing out that mergers and acquisitions have already been increasing quite rapidly within the cryptocurrency industry. According to PwC’s 3rd Global Crypto M&A and Fundraising Report, the total value of M&As within crypto more than doubled in 2020, to just over USD 1.1bn. They expect to see further consolidation in the industry with some of the larger, well-funded, or profitable firms continuing their M&A activities.
"We expect the focus to be not on the acquisition of smaller competitors but rather of firms that offer ancillary services to their current offering (e.g. crypto media, data, compliance, research)," they added.
With an average value of USD 53m (up from USD 19 million in 2019), most of the previous deals involved one crypto firm merging with or acquiring another. For example, Binance bought CoinMarketCap, while Coinbase acquired New York-based crypto brokerage Tagomi.
Nonetheless, with bitcoin and crypto now turning the heads of financial institutions and banks, it’s likely that 2021 (and beyond) will bring a greater number of ‘traditional’ finance companies buying up firms within crypto. And we’ll also see an increase in crypto firms acquiring companies outside of the sector.
“Large scale crypto institutions may want to buy mid sized traditional fintech companies as part of acqui-hire strategy when building out liquidity or financial instruments requiring in-depth knowledge of the regulatory environment and offerings. Large scale traditional financial institutions may want to demonstrate thought leadership to growing nervousness amongst high net-worth individuals who are starting to fear missing out on significant capital growth potential within the crypto sector,” said Andrew Kessler, Chief Technology Officer and Co-founder of Zug-based digital data management platform Zenotta.
At the same time, Kessler expects that mid-sized institutions within crypto and traditional finance might want to team up, in order “to mutually strengthen their individual positions by bridging these two sectors.”
For Mike Colyer, the CEO of Digital Currency Group-owned mining-staking company Foundry, there will be one particular area of the crypto industry which will enjoy an increase in interest from firms outside of crypto.
“There is already an increasing trend among traditional companies to acquire or merge with crypto companies, especially those from the mining sector. In recent months, we've seen all kinds of publicly traded companies in North America, from sports lottery businesses to tech support solution providers, either acquire or merge with crypto mining businesses,” he told.
Colyer expects this trend to ramp up this year, while he also expects to “see more crypto players acquire traditional finance companies, especially as long as the bull market continues.”
Given that some crypto firms are now so large, big traditional finance corporations may be forced to acquire at least some of them, since the odds of building something equally successful in a shorter space of time are falling by the month.
“Given the time to market to build a crypto offering for all but the most agile traditional financial firms will be measured in years, if firms have not already started building a crypto offering then the only choice will be an acquisition to ensure they remain relevant. Paypal has led the pack with its recent acquisition of the custody infrastructure provider Curv,” said Seamus Donoghue, VP of strategic alliances at METACO, a digital asset infrastructure provider for traditional financial institutions.
