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Why Did Crypto Mergers and Acquisitions See 200% Growth in 2018?

2 mins
Updated by Adam James

In Brief

  • In the midst of a bear market, crypto companies are being snapped up faster than ever before.
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With the cryptocurrency sector in a downtrend since January 2018, many firms have paused their investigations into digital assets whilst the market struggles. Despite this, there are more blockchain and crypto-related projects than ever before, and the number of crypto startups merged and acquired is skyrocketing.
According to a recent report by CNBC, 2018 has seen the number of crypto-related deals surge by over 200 percent as industry insiders, venture capitalists, and blockchain-savvy investment firms see the slump as an opportunity to snap up promising projects for a bargain price. During this time, Bitcoin’s value has fallen by almost 68 percent, currently trading at $6472.
Working together with Pitchbook, JMP securities crunched data relating to cryptocurrency and blockchain companies and determined that, since the start of 2018, there have been at least 115 deals involving cryptocurrency — a number projected to reach 145 by the end of 2018. Compared to the just 47 deals completed in 2017 — while Bitcoin rocketed to over $20,000 — this represents more than a 3x yearly growth. The great majority of merger and acquisition details are private, and so the average size of the deals remains unknown. However, JMP did comment that the bulk of M&A transactions were “relatively small,” with less than $100 million being involved.

Assets and Investment

In an interview with CNBC, Satya Bajpai, head of blockchain and digital assets investment banking at JMP Securities, said that we’re “seeing a mispricing of assets” — indicating that the majority of crypto-startups have their value tied with that of Bitcoin, the significant decline of which has lead to “an ideal opportunity for strategic acquirers” looking to gain a foothold while the market is down.
In an industry that is fast gaining pace, often the only way to gain an advantage is to make select acquisitions, rather than starting from scratch. New products, platforms, and blockchains are being released on a regular basis, but the majority of entries are early-stage companies lacking proper financing. Describing the current market as a “land grab” for crypto technologies, Bajpai went on to state that purchasing or investing in projects directly can save time, giving companies access to the technologies and products they need to keep up with the breakneck pace of the industry.
Making acquisitions in the industry also provides access to one of its much-needed resources — talent. With the industry experiencing such rapid growth over a short amount of time, it has found itself in a severe drought for skilled developers and other technical positions. Buying a company essentially leapfrogs this issue, avoiding the competitive blockchain job recruitment environment.
With the sector being so new, accurately valuing an asset can be challenging, particularly for companies that raised the majority of their capital through an initial coin offering (ICO). Most ICOs can be considered long-term investments, with the vast majority of these still in the process of completing the stages of their post-ICO roadmap. Because of this, any firm looking to purchase equity in, or merge with, an ICO company would need to accurately project its long-term potential — a tall task for an industry still in its infancy. What do you think of cryptocurrency startups getting merged and acquired? Let us know your thoughts in the comments below!


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