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Blockchain market: the Top 3 Crypto M&A deals in 2019?

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Sitting in a bearish market in the crypto space, everyone involved are anxiously waiting for the bulls will make a sweeping comeback! Recent developments in the space provide the directionally positive movement with BTC testing $4,000, compelling evidence for this statement is yet to be brought forth. Interestingly however, the market is consolidating and this could bring some much-needed stability to the crypto space. We haven’t even hit the half-year mark and already major companies have coalesced in multimillion-dollar agreements.

 

Why M&A deals are significant? That’s for the bankers and the lawyers, right?


Largely true. But they do have an impact on all threads in the ecosystem.

From increasing profits and customer base to decreasing competition and overheads, mergers and acquisitions have countless benefits for both buyers and sellers. It’s easy to get carried away in the crypto space given the incredible growth some coins have accomplished in the past couple of years. The entire market cap of cryptocurrencies is currently $135 billion. To put that in perspective, the AUM of Blackrock is over $6.4 Trillion!

But does M&A deals happen in Crypto?

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M&A deals have been significantly increasing in the crypto space year-on-year. The number of M&A deals increased by 76% in 2017 when compared to 2016 but in 2018 it grew by 85%. This increase is likely because of established companies acquiring smaller ones to gain access to their intellectual property, customer base or augment their own business by leveraging the acquired companies. The year 2019 is off to a good start as well with eleven deals recorded so far. Now let’s get into the most important deals of 2019 so far.

#1: Blockchain startup Coinsquare acquires P2P marketplace StellarX

Canadian trading platform Coinsquare recently acquired StellarX, a decentralized peer-to-peer marketplace based on Stellar network that has zero transaction fees, according to a press release by business wire. This development comes one year after Coinsquare raised a significant $28 million in private funding from Canaccord Genuity group as part of a series B round, according to InWara’s Private Funding Database. Interestingly, this crypto exchange had raised $13 million in 2017 through two funding rounds, including a $5 million seed round. Cole Diamond, CEO of Coinsquare was quoted saying “We are deeply committed to ensuring that the cryptocurrency market thrives, and adoption is key” further adding “Stellar is the fastest payment network in the world and we see enormous potential to create industry-leading services on StellarX to further broader adoption” indicating Coinsquare plans on leveraging Stellar’s cutting-edge technology to augment their own platform. Notably, this isn’t Coinsquare’s only acquisition. According to InWara’s M&A database, the firm also acquired BlockEQ, a stellar based crypto wallet, in December 2018 for a cool $9 million. It would appear that Coinsquare has tied its destiny inexorably to that of Stellar — That’s a bold move!

StellarX is a peer-to-peer decentralized trading platform based on Stellar network. StellarX, interestingly, allows its users to trade various fiat currencies for crypto, which is unusual among decentralized exchanges. StellarX claims to be the first decentralized exchange with global fiat payment gateways. Users have complete autonomy over their digital assets and since trading is peer-to-peer, there are no middlemen and no transaction fees. With Binance opening up their own DEx, it appears that Coinsquare is looking for an early movers advantage in this acquisition.

The strategic synergy behind this acquisition is the significant benefits of Stellar’s platform. Stellar network is supposedly more advanced and can handle much higher transaction rates than competing networks. This would give Coinsquare an edge over competing trading platforms especially given that the world is moving towards high-frequency trading. Coinsquare is the newest member in the group of trading and investing startups to acquire strategic partners to help augment their own platform.

 

# of M&A deals, sector wise

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M&A activity in the “Éxchanges” sector is the highest across the blockchain and crypto space, which is surprising given that the most obvious use-case for blockchain was Financial services and specifically payments. To date, 40 M&A deals have taken place in trading and investing, making it the hottest sector with a sixth of the all M&A deals in the crypto space, indicating that the accessories to exchanges like wallets or portfolio managers are all hot commodities in today’s market. Financial services at a relatively distant second account for a tenth of all M&A deals.

A potential reason as to why investment and trading sector is competitive could really be the nature of the market. For a user to buy and sell cryptocurrencies, there needs to be a trusted intermediary or a broker to facilitate the transaction and hence functions similar to a traditional stock exchange. This rather “conventional” perspective could dramatically change with the introduction of decentralized exchanges. Enter StellarX. The advantages of little to no transaction fees, direct trade between buyer and seller and ‘significantly reduced risk’ (well, we hear that everyday!) from hackers make these rather coveted. In spite of these advantages, decentralized exchanges currently have low trade volume and sub-par levels of liquidity — a major reason being the limitations between blockchains, for instance, a DEx will allow you to trade only in the ETH blockchain and not allow for the purchase of BTC or LTC or the likes. Thus decentralized crypto exchanges (DCEx) like StellarX don’t immediately pose a threat to centralized crypto exchanges (CCE) like Coinbase despite DCEx’s providing the benefits of decentralized blockchain network, however are definitely making a buzz in the space.

 

#2: Facebook dives into crypto — Acqui-hires Chainspace employees

 

This week, social networking behemoth, Facebook made headlines when it acqui-hired a majority of the employees at Chainspace, a Blockchain startup founded by researchers at University College of London.

Facebook has interestingly, aggressively upped its hiring of experts in Blockchain and crypto space. The goal — to leverage their expertise to explore applications for the still nascent Blockchain technology. As a Facebook spokesperson was quoted “Like many other companies, we (Facebook) are exploring ways to leverage the power of blockchain technology. This new small team is exploring many different applications. We don’t have anything further to share.” also adding “Our ultimate goal is to help billions of people with access to things they don’t have now — that could be things like healthcare, equitable financial services, or new ways to save or share information.”

Chainspace is a decentralized infrastructure according to the firm’s academic white paper, published way back in August 2017. Its whitepaper further expands on the technology backing the infrastructure like S-BAC, a distributed commit protocol, that supports smart contracts. Chainspace also claims its technology is secure from any tampering on or off its network, as it uses high-auditability, Blockchain techniques such as Byzantine Fault Tolerance (BFT) (well, we’ve heard that again now, haven’t we?!).

 

Social media revamped by Blockchain? 

 

Facebook needs no introduction, the American social media behemoth had 2.2 billion monthly active users as of January 2018. Also, Facebook is hardly the first social media company to flirt with the idea of leveraging Blockchain and Crypto. Earlier a Canadian messaging platform Kik raised capital through an Initial Coin Offering — ICO. Kik later revealed plans of integrating the native Kin token, with the Kik messaging platform, to allow users to tip public group admins. Kin tokens can also be used in different ways in numerous mobile apps available on Google Play and iOS App Stores. Kik recently made headlines for its bout with the SEC, that escalated to the point where the SEC may even serve Kik a ‘cease and desist’ order. To know more about why Kik is in trouble with the SEC check out InWara’s article.

Presently, most social media platforms are plagued with security risks, as witnessed in the famous trial of Mark Zuckerberg, because the platforms run on an ad-revenue basis and this has lead to users privacy being invaded several times. Further, the inherent centralized nature of data storage by has lead to several data breaches. This could be done away with by leveraging a decentralized network like Blockchain. To know more about how Blockchain could revolutionize social media check out InWara’s article.

 

Facebook to introduce stablecoin for Whatsapp?

 

In early 2018, Facebook-owned messaging platform, Whatsapp introduced its in-app payment feature in India, linking it with the country’s Unified Payment Interface (UPI). This feature enabled users to send fiat currency directly to other users without any transaction costs. Months later, Facebook announced plans of introducing a stablecoin on Whatsapp platform allowing the same for users all over the globe. Now imagine that from a customer base POV for Facebook and you will realise the pull.

A stablecoin is a type of cryptocurrency that is pegged to the US dollar, which minimizes the volatility of the coin, hence monikered ‘stable’. Although still in its nascent stages Facebook hopes to target the Indian remittances market with the introduction of cryptocurrency into Whatsapp. Indians sent home $69 billion dollars in 2017 according to a Bloomberg report. In the current financial system, it takes days for a person to send money cross-borders into another country, and there are high transaction fees, Facebook may be hoping to replace this system and create a simple platform to allow for this. Interestingly, Facebook isn’t the only giant to have a tryst with stablecoins, JP Morgan recently announced their closed-blockchain stablecoin.

Another instance of acquisition-driven growth in the Crypto space!

 

Kraken acquires UK based crypto trading and indexing firm for north of $100 million

 

Kraken, a San Francisco based cryptocurrency exchange that claims to be the most secure Bitcoin exchange, recently made headlines when it acquired Crypto Facilities, according to InWara’s M&A database for at least $100 million.

Through this M&A deal, the management teams of both parties hope to create a global leader in crypto futures and spot trading as Crypto Facilities is renowned in the crypto trading space. As CEO and Founder of Crypto Facilities — Timo Schlaefer said “It has been our mission to build the most sophisticated, powerful and user-friendly cryptocurrency trading platform. Teaming up with Kraken allows us to innovate the next generation of products and tremendously boosts the value we are able to provide to our clients”, suggesting the ambitious goals of both companies.

Crypto Facilities, a London based, trading platform and index provider of cryptocurrencies, claims to offer its users safe and secure (well we keep hearing this now, don’t we?) derivatives trading around the clock. Notably, Crypto Facilities claim to be the first regulated exchange to offer futures on Bitcoin, Ethereum among several other major cryptocurrencies.

Kraken is one of the world’s largest global Bitcoin exchanges (based on Euro volume and liquidity). In the past, Kraken has supposedly achieved several feats like the first Bitcoin exchange to pass a cryptographically verifiable proof-of-reserves audit and the first to offer clients the opportunity to participate in leveraged bitcoin margin trading. The company also calculates and administers the CME CF Bitcoin reference rate which is the backbone of CME Group’s Bitcoin futures.

Clearly, this appears to be an amalgamation of two thought leaders in the Bitcoin derivatives space and each looking to leverage the expertise of the other to make one and one add up to three!

 

Kraken: Aggressive acquirer 

 

Kraken has been strategically acquiring Blockchain enterprises from around the world. According to InWara’s M&A database, its acquisition of Crypto Facilities will mark Karken’s sixth major acquisition to date. Some of the marquee deals include the renowned trading and portfolio tracking platform Cryptowatch, digital wallet-funding service Glidera, and several major bitcoin exchanges such as Coinsetter, Cavirtex and CleverCoin.

Interestingly, Kraken appears to be adding ancillary functions to the core trading platform, making the user experience far richer. The easiest way to enter the auxiliary solutions space is through acquisitions and Krake, flushed with funds, doesn’t seem to have qualms in doing exactly this!

The prolonged ‘crypto winter’ has made market conditions unfavourable for Blockchain and crypto enterprises and is likely the reason for the surge in consolidation being observed in the market. 2019 has forced many ICOs to either close up shop or go for strategic partnerships to help survive these adverse conditions.

 

# of M&A deals in Blockchain and crypto market

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Other significant acquisitions of 2019 include, Coinbase acquiring data handling startup Blockspring. Bakkt’s acquisition of certain assets of Chicago-based futures commission merchant Rosenthal Collins Group (RCG) and EZ Advance acquiring Indian digital payment start-up Alconomy to expand their business into digital banking.

Coinbase, Kraken’s competitor, is a San Francisco based digital currency exchange and according to InWara’s M&A database, the company has made eleven acquisitions till date, the latest being that of Blockspring. To know more about Coinbase and its strategic acquisitions check out InWara’s article.

 

Kraken expanding to Europe

 

Through the acquisition of UK based Crypto Facilities, Kraken hopes to cement its place in the crypto market space. Interestingly according to InWara’s monthly report: January 2019, The UK crypto market space is booming despite the unfavourable market conditions, even racing past the US in terms of number of ICOs. CEO of Kraken-Jesse Powell was quoted saying “We are excited to introduce eligible clients to these industry leading futures and index products. Over the coming months, our teams will continue to enhance and expand these offerings. We’ve got great stuff in store for traders and institutional clients in 2019” suggesting the company has plans to continue to acquire companies that give Kraken a strategic edge.

 

Is 2019 going to be a very busy year for M&A?

 

The entrance of leading tech companies such as Amazon and Microsoft into blockchain could encourage more companies to start integrating the technology in their ecosystems. It could take years of R&D for an established company to catch up with the latest technology such as blockchain and then integrate it into their ecosystems, however, an easier and quicker way for them is to acquire leading companies in the blockchain and crypto space and integrate their intellectual property or use their platforms.

To top this off, more retail investors will hop onto the crypto bandwagon. Due to the borderless nature of the crypto space, exchanges will likely have to cater to a truly global audience, on par with tech giants like Google.

Further, given the rather subdued prices, many firms would be available cheap and the benefits for the likes of Google & Amazon could be immense, gaining significant value for their buck!

These developments could either make or break the global acceptance of the crypto space, which means 2019 could be a decisive year for blockchain and crypto.