The year’s most significant crypto M&A deals — and how 2024 might shape up - Blockworks

The year’s most significant crypto M&A deals — and how 2024 might shape up

Financial institutions could start acquiring larger crypto players in the coming year as the segment gains regulatory clarity, a Baker Botts partner says

Fireblocks CEO Michael Shaulov | DAS New York 2022 by Blockworks

Though crypto mergers and acquisitions slowed in 2023, some industry watchers say such transactions are likely to be more en vogue next year as the space continues to mature.

There were 203 crypto M&A deals in 2022. Such deal count this year stood at 143 on Dec. 13, according to advisory firm Architect Partners — on pace to decline by 27% year over year.

Nearly a third of the 2023 transactions — 42 in all — have come within the investing and trading infrastructure category, the data shows. This comprises non-exchange trading firms, custodians and other companies focused on “infrastructure to the trading lifecycle,” said Architect Partners founder Eric Risley. 

Which deals were among the most notable?

Among the most notable M&A deals was Ripple’s acquisition of crypto custody firm Metaco for $250 million in May.

Ripple is perhaps best known for establishing one of the earliest blockchain-based payment networks. For the company, securely managing digital assets is crucial. Switzerland-based Metaco provides custody infrastructure to banks, fintechs, exchanges and corporations.

Ripple CEO Brad Garlinghouse called custody “a key facet of the infrastructure required for enterprise crypto services” at the time. Sagar Shah, Ripple’s head of custody, had told Blockworks the firm spent two years evaluating crypto custodians, highlighting Metaco’s “first-rate bank customers,” and “crypto native team.”

Another major deal was Coinbase’s acquisition of One River Digital Asset Management in March for roughly $97 million. It was the exchange’s first buy since closing a $275 million deal for derivatives exchange FairX in February 2022.

The crypto exchange said in a blog post at the time the acquired firm would allow it to offer investment advisory services to institutional clients.

Read more: Three deals ‘emblematic’ of market during record Q1 for crypto M&A

Coinbase’s acquisition came as the company intensified the push to expand its product set and geographical footprint. The firm’s revenue from subscriptions and services, derived from sources like stablecoins, custodial fees, blockchain rewards and interest income, surpassed its earnings from transactions in the third quarter.

Alyssa Choo, crypto equities specialist at Bitwise, previously argued that the exchange’s future is as “a crypto super app” with a variety of revenue streams.

“Coinbase recognizes that crypto asset investors are rapidly shifting from crypto-native speculators to more sophisticated, long-term investors,” Risley said. “Investors demand more sophisticated investment strategies, indexes, investment products and advice.”

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In the mining space, Hut 8 and US Bitcoin Corp. closed what was billed as “a merger of equals” earlier this month. The combined company enjoys more geographic diversity and business lines, segment observers said , helping its standing ahead of the upcoming bitcoin halving.  

Tokenization efforts show up in 2023 deals

The Depository Trust and Clearing Corporation (DTCC) bought Securrency, a blockchain-based financial and regulatory technology developer. 

DTCC, a financial market infrastructure behemoth that processes trillions of dollars in securities transactions daily, revealed the $50 million deal in October and closed it this month . 

It marks one of the latest examples of traditional finance and crypto converging, a trend that has reared its head in recent months in the form of tokenization. 

Read more: TradFi, DeFi convergence continues through tokenizing real-world assets

“In its first acquisition in a decade, DTCC is anticipating and embracing the digitization of traditional assets of all types, the use of blockchain-based transaction settlement, and acting as a regulatory-compliant bridge between traditional securities and emerging digital asset marketplaces,” Risley told Blockworks.

Other tokenization-related deals include Securitize’s buy of Onramp Invest . 

The acquired digital asset wealth platform works with US registered investment advisers (RIAs). The purchase allows Securitize to offer tokenized alternatives — like private equity and private credit — through systems RIAs are accustomed to using, the company said at the time.

Digital asset infrastructure platform Fireblocks also looked to expand its tokenization abilities by acquiring smart contract firm BlockFold. 

Fireblocks CEO Michael Shaulov said in a statement that BlockFold’s expertise will help it assist big financial institutions to quickly launch tokenization projects. 

In a transaction reflecting the convergence of traditional finance and blockchain more broadly, German capital market giant Deutsche Borse bought digitized fund distribution platform FundsDLT. 

“Distribution of financial products is critical for primary issuance and secondary markets, and FundsDLT streamlines and automates processes leading to increased distribution with reduced costs and time,” Risley said. “Similar [distributed ledger technology] infrastructure will be implemented in nearly every financial product.”

What to expect in 2024

Samuel Dibble, a partner at Baker Botts, noted that milestone events in 2023 are likely to lead to greater crypto market maturity, which could in turn spur a greater number of mergers in acquisitions next year.

A US federal judge in July partially sided with Ripple Labs in a US Securities and Exchange Commission lawsuit alleging its XRP token constituted an unregistered security offering.

The SEC sued crypto exchanges Coinbase and Binance earlier this year, accusing each of operating as unregistered securities exchanges. The US Department of Justice last month revealed a series of actions against Binance, including $4.3 billion in fines and forfeitures. 

The two exchanges remain in legal battles with the SEC . 

Read more: Binance says the SEC can’t use DOJ plea deals as proof of guilt

“When the regulatory air clears on whether digital assets are securities, commodities or something else outside of existing regulatory regimes, I’d look for the larger, more diversified financial institutions to start acquiring the larger crypto players — or at least their key assets,” Dibble told Blockworks.  

Additionally, the sale of assets belonging to bankrupt exchange FTX — including companies owned or acquired by the company prior to its collapse — was “eye opening,” Dibble added. FTX, for example, agreed in April to sell crypto derivatives platform LedgerX for $50 million, Reuters reported .

There is still plenty of demand for digital assets, Dibble noted. BlackRock CEO Larry Fink called crypto “flight-to-quality” assets for some investors. 

Financial institutions, eager to serve their existing clients and attract new ones interested in balancing crypto-heavy portfolios with more conventional financial assets, are likely to seek opportunities in providing cryptocurrency services, Dibble told Blockworks. 

“For those reasons, I think there will be more deal-making in the headlines in 2024 than there was in 2023,” he said.

Many crypto companies — particularly those tied to trading volumes and crypto prices — have improving fundamentals moving into 2024, Risley said.

Bitcoin ( BTC ) and ether ( ETH ) are up roughly 155% and 85%, respectively, year to date.

The Architect Partners founder added: “This thaw likely gradually opens the aperture for management teams to regain comfort with executing on strategic initiatives via mergers and acquisitions.”

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