The blockchain industry shrugged off the craziness of the 2020 pandemic, with many companies thriving in the “remote” working environments brought about by COVID-19.
Almost $700 million in mergers and acquisitions took place in 2020 across 83 transactions. That’s the largest number ever and a sizeable increase from the previous record of 69 M&A transactions in 2018. The majority of activity last year was within the industry itself, consolidating the sector with minimal engagement from external companies.
More than 90% of the $691 million reported was comprised of the top three acquisitions by Binance ($400 million), FTX ($150 million) and Coinbase ($90 million).
Binance’s purchase of CoinMarketCap at the end of March 2020 for a reported $400 million equaled the largest blockchain acquisitions of all time, rivaled only by Circle’s purchase of Poloniex and NXMH’s purchase of Bitstamp, both for $400 million, in 2018.
The leading exchange by volume received sharp criticism over the purchase, as it appears to represent a conflict of interest given that CoinMarketCap is a data and analytics company that provides comparative data about crypto exchanges, including Binance.
Jack Purdy, an analyst for Messari, told Cointelegraph that the takeover sets a negative precedent for the industry, no matter how well either company behaves. “It does represent a fundamental conflict of interest that has negative externalities for the space,” he said. “It's like if Joe's Pizza came out with the top 10 pizza slices in New York and everyone that uses that list happens to be those least informed to make the decision on where to go.”
“Even though Binance/CMC can be completely well-intentioned, it's impossible for ratings not to be influenced by the underlying bias of the creators. If there are objective weightings to a system that would hurt Binance's standing, it's more likely than not that it won't be implemented.”
Binance has claimed that both companies are individual entities and there is no bias from CMC. Despite the early criticism, it appears that sentiment toward the acquisition has softened in more recent months. In October 2020, FTX CEO Sam Bankman-Fried voiced his opinion on Twitter that Binance was actually a lifesaver for CoinMarketCap:
“Pretty much the day Binance bought CMC, it started getting better — a lot better. It has a lot of catching up to do, but the product has gone from hopelessly f---ed to competitive.”
This wasn't the only activity by the leading exchange, with Binance acquiring multiple other companies throughout 2019 and 2020, including crypto debit card provider Swipe for an undisclosed sum. Similar to CoinMarketCap, Swipe chief operating officer John Khenneth also stated that “The deal was structured where Swipe is able to run the company independently from Binance.”
In a recent press conference, Binance founder and CEO Changpeng Zhou hinted that the company will acquire between 20 to 30 other companies in 2021, further strengthening its position in the crypto sector.
Crypto exchange FTX, which only launched in 2019, was the only other company to conduct a nine-figure acquisition in 2020, with the purchase of portfolio management app Blockfolio for $150 million.
The purchase has the potential to bring its 6 million users to the exchange. Although Blockfolio does not have as many unique users as CoinMarketCap, the level of user engagement is considerably higher, with more than 150 million impressions per month.
Blockfolio co-founder and CEO Ed Moncada told Cointelegraph that the company will continue to function as an independent app.
United States crypto exchange Coinbase actually leads the pack with the largest number of acquisitions to date — six more than Binance. The company has completed at least 16 deals in its history, with the most recent one being the acquisition of prime brokerage platform Tagomi for $90 million.
According to reports, Tagomi had been struggling with revenue as low as $1 million from its $1 billion in annual trading volume after it slashed trading fees.
Publicly traded companies also got involved, with advanced software solutions company CleanSpark acquiring crypto mining firm ATL Data Centers for just under $20 million worth of the company’s stock.
Other notable acquisitions include Galaxy Digital’s purchase of digital-asset investment and borrowing platform DrawBridge Lending, as well as futures markets liquidity provider Blue Fire Capital. Although the figures were not disclosed, Galaxy Digital said that DrawBridge will end up with more than $150 million in third-party assets as a result.
In September 2020, New York-based CB Insights announced it would soon open an office in Amsterdam as part of its acquisition of blockchain data provider Blockdata for an undisclosed sum.
Smart contract provider TrustSwap also expanded its reach, acquiring one of its biggest competitors, Team.Finance.
The recent acquisition of second-layer Ethereum scaling solution OMG Network by Hong Kong-based over-the-counter trading firm Genesis Block is said to help accelerate the network’s development, with a specific focus on DeFi.
PayPal was also looking to join the mergers-and-acquisitions party after enabling crypto purchases for the first time; however, talks to acquire crypto custody provider BitGo appear to have now fallen through. Rumors suggest PayPal is in talks with other crypto companies.
With the dramatic surge in decentralized finance this year, burgeoning DeFi protocols have also started merging. In November, Yearn.finance went on a collaboration and merger spree, including with market coverage provider Cover Protocol and lending protocol Cream Finance.
Although acquisitions are often a sign of a thriving industry, they have led to some critics raising concerns over increasing centralization. Acquisitions of rivals by leading companies strengthen their control of the market, potentially reducing competition.