The prolonged cryptocurrency bear market has witnessed a significant number of organisations discovering new opportunities for expansion through consolidations and acquisitions. According to a CNBC report, investors are seeking a growing number of deals within the blockchain area, even in the face of stagnant or falling crypto rates.
Despite market volatility and a peak-to-trough bitcoin cost reduction of nearly 70 percent, the last year has seen an increase in merger and acquisition activities in the past year as shown by data from JMP Securities and PitchBook.
According to the data, token values related to startups have stayed correlated to bitcoin as opposed to actual company value. That is perhaps understandable when taking into consideration the fact that bitcoin has been around for about a decade, making it an elder statesman in comparison to most of the crypto market.
Speaking to CNBC, Satya Bajpai, a specialist consultant on mergers and acquisitions and head of blockchain and digital assets investment banking at JMP, explained the phenomenon.
JMP’s data indicates that mergers and acquisitions are getting to be a more favored choice versus starting up new businesses or branches from scratch. Over the last year, over a hundred cryptocurrency or blockchain-related deals have already been announced, with a projection of 145 at the end of 2018. To put that figure in perspective, the equivalent figure for all of 2017 was 47 in a time once the bitcoin price touched $20,000.
Cryptocurrency giant Coinbase has been one of the industry’s most prolific companies in regards to”acqui-hiring.”
Bajpal describes the current strategy adopted by the majority of investors as a”land grab” approach, where they’re compelled to buy instead of build. Explaining that construction takes rather a long time, he says firms benefit from the costly option of purchasing since the acquired entity already has some technology and, frequently, market-ready products.
In a conversation with CNBC, Bajpal said that the strategy can also be a land grab for talent as the new entity benefits from having workers with business and technical backgrounds since blockchain engineers aren’t easy to find. He specifically referenced the illustration of Coinbase’s acquisition of Earn.com, which saw Earn’s founder and CEO getting Coinbase’s first-ever CTO.
He also added that users — an important part of a startup’s assets — are on-boarded almost instantly through an acquisition.
It isn’t all sunshine and rainbows, but as mergers and acquisitions have some challenges, too. Considering that the nascency of the distance, valuations aren’t always simple. Companies which have raised funds through first coin offering (ICO) listings need to take into account the different forms where new investors are paid. This gets even more complex as the new organizations are often still in the developmental period when new offers start to spring up.