According to recent reports, Crypto M&A deal flow in the first 6 months of 2020 has already surpassed 2019 activity. According to PwC, the average deal size has increased since last year. In an environment where regulatory clarity continues to lag in the United States, merger and acquisition deal flow is flocking to Asia-Pacific, Europe, the Middle East, and Africa.
Crypto M&A Activity
According to a report by Bloomberg, crypto merger and acquisition activity has surpassed 2019 metrics in just the first 6 months of 2020. Despite deals being less frequent, they are coming in at larger dollar amounts. The average deal size has increased since last year, with global deal flow coming in at $597 million during the first 6 months of 2020. In 2019, there were about 125 deals that took place. During the first half of 2020, there were 60 tie-ups.
With the CoinMarketCap and Binance deal being valued at $400 million this year, that deal in itself accounted for significant market share of deal flow this year. Despite this metric, the average deal size is still increasing.
Henri Arslanian, Crypto Leader at PwC stated that:
“We expect crypto M&A activity to remain strong for the coming months particularly with some of the larger or more profitable players acquiring firms that offer ancillary services to their current offerings. We should expect the large crypto unicorns to become increasingly like ‘crypto octopuses’ by acquiring or investing in various ancillary businesses in order to remain dominant.”
United States Becoming Less Favorable
PwC research shows most of the crypto deal flow happening outside of the United States. Based on the 60 deals in the first half of this year, 57% of them occurred in Asia-Pacific, Europe, the Middle-East, or Africa. It is important to note that this is up from 51% in 2019.
The report did not mention why PwC believes this is happening, but it could be related to regulations in the United States. Regulatory clarity continues to be an obstacle for companies engaging in crypto related activities. When a company is planning to make a significant investment in another company, regulatory uncertainty can make the deal even more riskier than it already is. As the year progresses, many companies operating in the United States have continued to downcast the current framework.
Most recently, Ripple co-founder Chris Larsen said the firm is thinking about relocating to U.K, Switzerland, Singapore, or Japan due to crushing regulations in the US. Larsen stated that the US was “woefully behind” in terms of properly preparing for the next generation financial system and welcoming innovation. This is a strong statement from a company that was most recently valued at $10 billion.
Crypto Markets Enjoy M&A Activities
Based on a recent Q3 report by eToro, M&A activity is considered one of the top “significant events” that drive crypto prices. The report further outlines that based on all the available data, there has been a 90% chance of positive returns the week following an M&A deal in the market. With digital asset markets still being pre-mature, many investors value the fact that companies are facilitating deals to hopefully gain a larger market share. It shows that leadership across the globe sees value in this emerging market moving forward.
Bitcoin, the largest cryptocurrency by market cap, has been one of the best performing asset classes this year. Despite a global pandemic putting significant pressure on the economy, Bitcoin has surged +58% YTD as a hedge against the US Dollar.
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