Major M&A Will Have a Direct Impact on the Crypto Market in 2023 – Coinbase Glb (NASDAQ:COIN)
Mergers and acquisitions (M&A) are a classic means of scaling and restructuring businesses. The result of such moves is often a dramatic shift in the general market situation, and the amounts involved in such deals are often truly astronomical. Vodafone Group plc VOD paid more than $180 billion for its archrival Mannesmann AG in 1999, American Online AOL bought Time Warner for $165 billion in 2000, and Dow Inc. DOW bought DuPont for $130 billion in 2015. M&As involving such values have never before been witnessed in the cryptocurrency market, but the conditions for a precedent are already beckoning on the horizon. There are clear signs that we may witness a transaction of a similar size already this year. But before I dive into forecast territory, I want to take a stroll down memory lane of past industry mergers and acquisitions.
The first offers in Crypto began in 2018
When Bitcoin BTC/USD lost the dubbing of an ominous bubble in 2018, many major players began to enter the cryptocurrency market, taking with them the first M&As. It was in late February 2018 when Circle, a Goldman Sachs startup focused on mobile payments and cryptocurrencies, bought the Poloniex exchange for $400 million. “These markets are still in their infancy, but they have tremendous promise,” Circle CEO Jeremy Allaire commented at the time.
Coinbase Global Inc COIN then acquired the mobile wallet Cipher Browser and the social network Earn.com. BitGo bought out the Kingdom Trust company, which manages over $12 billion and has more than 100,000 global clients. Cryptocurrency exchange Binance also chipped in by buying Coinmarketcap for $400 million, making it one of the most talked about deals in the market. According to data provided by consulting firm PricewaterhouseCoopers, the total volume of mergers and acquisitions in 2020 reached about $1.1 billion in volume, up from $481 million in 2019. By the end of 2021, the volume of M&A in the cryptocurrency market had reached $55 billion, a colossal leap from $1.1 billion a year earlier, with growth of 4,868%.
Who buys who
Along with the growth in volume came an increase in the average size of the transaction per agreement. The crypto market has good chances in the next three to five years to break the long-standing record of payouts from one giant to another. Although industry players are used to internal market transactions, a deal between a major cryptocurrency company and a major institutional player from the world of Wall Street may come as a surprise of the ambiguous kind.
Companies usually grow stronger through M&As, strengthening their positions and influence in the market. Take, for example, the purchase of CoinMarketCap by Binance, which ultimately secured the latter’s status as an industry giant. A sensational journalistic investigation later, several crypto companies simultaneously expressed interest in gobbling up Coindesk, although the matter did not progress past the point of interest.
Potential benefits and prospects outweigh risks
The likelihood of large, fresh transactions will increase as the market stabilizes and the volatility of cryptocurrencies falls to acceptable levels. Whether it is a media channel or stock exchange, the value of a crypto company is highly dependent on the capitalization of the cryptocurrency market as a whole. As such, any business that admits the possibility of a sale will bide its time awaiting better conditions to increase its price tag. The initial offer made by Vodafone Group to Mannesmann AG hovered in the $70 billion territory. The parties later agreed on $180 billion – more than double the original price. There is a good chance that all open M&A offers will swell in line with market growth. Between 2020 and 2022, the Bitget exchange received several purchase offers from various companies. Surprisingly, they came with larger amounts from players well outside the cryptocurrency industry. Financial businesses that do not have a cryptocurrency infrastructure are willing to pay serious money for the business.
Despite the many risks, potential buyers are well aware of the prospect of significant earnings that can be made in the cryptocurrency market. The result is a growth in the values of the offers, but business owners are in no rush to sell, considering that their companies could be worth much more in the near future. Such circumstances lay the foundation for the largest merger deals that may go beyond the historical values recorded in the cryptocurrency industry.
It appears that mergers between cryptocurrency businesses do not involve the threat of centralization, but rather result in the redistribution of market share and influence. It may also appear that a potential takeover of the largest player in the cryptocurrency market by a representative of a centralized fiat economy involves great risk for all players in the market. However, in my opinion, such a transaction may well become a well-known Trojan horse for the entire cryptocurrency industry, marking the countdown to classic banking and other centralized financial systems.
Buyers are cautious but full of optimism
The collapse of the FTX exchange has spurred potential buyers to look to acquire major crypto companies to deepen their interest in the financials of the businesses they seek to acquire. However, an unhealthy financial situation is not the only danger lurking behind the veil of false success.
Imperfect regulation and the need for a license are also issues that require a lot of attention. In addition, the increased activity of the regulators makes both sides of future transactions nervous. The volatility that accompanies such actions only adds fuel to the fire of uncertainty.
Despite the prevailing sense of gloom, 2023 started quite well for the market as the price of BTC increased by 71% since the beginning of the year. It is possible that such a thaw symbolizes the beginning of spring. Should that be the case, potential corporate buyers will need to hurry to close their M&A deals before the crypto summer dawns.
