In 2017, a seemingly endless procession of ICOs saw blockchain startups accumulate mountains of capital, and in recent years their war chests have been broken open as the industry’s movers and shakers expand their balance sheets. Just as these companies don their M&A hats, capital is flowing in the opposite direction, as last year, Forbes identified over 100 major firms actively exploring blockchain through industry consortiums and other projects.
Such activity indicates two things. First, that blockchain companies are building out their suite of services and expanding their empires, with eight- and nine-figure deals becoming commonplace. Secondly, giants in various industries – from insurance to cloud computing, supply chain and finance – are getting on the blockchain bandwagon. It all bodes well for the future of distributed ledger technology and for consumers who stand to benefit.
The evolution of acquisition
Acquisitions began to accelerate soon after the ICO craze died down in 2018, with TRON’s purchase of BitTorrent for $126 million garnering most of the headlines. That same year, Circle acquired US crypto exchange Poloniex for $400 million, splashing cash pledged by investors like Goldman Sachs and venture capitalist Jim Breyer. As the saying goes, nothing would ever be the same again.
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Fast-forward to 2020 and the spending spree has hardly let up. In fact, despite the pandemic hitting many pockets hard, the value of industry acquisitions in the first half of 2020 has already surpassed that of 2019 according to a report by PricewaterhouseCoopers (PwC). Around $597 million was shelled out in 60 deals during the first six months of this year, compared to $481 million in the entirety of 2019. What’s more, the average deal size has increased from $19.2m to $45.9m, with the largest – Binance’s takeover of data-tracking site CoinMarketCap – equalling the previous high of $400 million.
Last week week, Singapore-based smart contract platform TomoChain acquired Lition, a Berlin-based developer of a public-private blockchain built for commercial products. In assimilating Lition’s core blockchain business, technology, human resources, treasury and digital properties, TomoChain – which is headquartered in Singapore with offices in Vietnam and Japan – will endeavour to promote enterprise adoption of blockchain tech throughout the European market. In particular, the company hopes to play a role in the development and implementation of Central Bank Digital Currencies (CBDCs), which are believed to be an important frontier in the evolution of blockchain technology.
Another high-profile acquisition revealed this month was crypto exchange INX’s takeover of Openfinance Securities LLC, a registered U.S. broker-dealer. In sealing the deal, INX obtained Openfinance’s broker-dealer and ATS business including its systems, digital asset listings, client base and licenses. A pioneer of regulated trading platforms, Openfinance has offices in Chicago, New York and Pennsylvania. As with the TomoChain deal, the particulars of the deal were not publicised.
PayPal flexes its muscles
The biggest news in crypto this year has undoubtedly been PayPal’s entry into the space. The payment giant will, for the first time, enable its 346 million customers to buy, hold and transfer cryptocurrencies such as bitcoin and ether. PayPal users will also be able to “spend” crypto at 26 million PayPal-accepting merchants, with the platform exchanging digital assets into fiat during the process.
PayPal is working alongside Paxos Trust, a New York State-chartered blockchain firm with its own crypto brokerage and settlement service. Unsurprisingly, though, it is already flexing its muscles by exploring takeovers. If rumours are to be believed, the company has designs on acquiring Goldman-backed startup BitGo, which provides trading services, lending, self-managed custody and a crypto wallet. In truth, PayPal may well be eyeing several acquisitions as it seeks to get skin in the crypto game.
So what does this slew of blockchain acquisitions mean for the crypto industry and the consumers who interact with its services? In short, it means that infrastructure is improving — trade execution, custody/staking tools, lending, compliance. On the other hand, some takeovers can lead to accusations of monopolisation and undue control — as was the case when Binance bought CoinMarketCap and TRON acquired Steemit.
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What does the future hold?
In the near future, expect crypto firms to acquire traditional financial enterprises and for interest to flow the other way; ergo, Nasdaq-listed public companies such as asset management firms purchasing businesses like digital asset exchanges. This is the logical next step given that Wall Street companies like MicroStrategy Inc are already buying up hundreds of millions of dollars worth of bitcoin.
In Japan, the country’s largest online financial conglomerate, SBI Holdings, has in recent years acquired not one but two crypto trading services, including TaoTao. A key partner of Ripple, it is also reportedly considering setting up a blockchain-based digital stock exchange in Osaka.
One thing is clear: if the value of industry acquisitions can surge during an economy-rumbling pandemic, the crypto industry is in rude health.