Crypto and blockchain-related merger and acquisition (M&A) activity has surged by over 200 percent in 2018, according to data compiled by JMP Securities.
Data compiled by JMP Securities for PitchBook reportedly reveals that the total number of M&A deals in the sector is set to hit 145 by the end of this year, with 115 already closed as of Oct. 15.
The data covers a wide gamut of M&A deals, including majority investments, partial and full acquisitions. While the deals’ sizes remain undisclosed, JMP is cited by CNBC as saying that the “majority” are “relatively small” – less than $100 million – and are “global in nature.”
Conversely, 2017 reportedly saw just 47 deals in total, as Bitcoin soared to hit its record high of $20,000 in December of that year.
JMP Securities' head of blockchain and digital assets investment banking, Satya Bajpai, told CNBC in an interview that the so-called “crypto winter” presents an opportune moment for those eyeing access to innovative tech, intellectual property and talent in the emerging space.
Bajpai further suggested that the downturn in Bitcoin is depressing prices market-wide, arguing that:
"You're seeing a mispricing of assets. Even for great businesses, the value of the token remains correlated to bitcoin, which can create an ideal opportunity for strategic acquirers."
Bajpai further characterized the heightened deal activity as something of a “land grab,” whereby the rapid pace of innovation in the sector pushes parties to opt for buying instead of starting from scratch:
“"[The M&A route is] expensive, but you get the technology and product immediately. This industry is like a treadmill – the only way to keep up on a treadmill is to keep running by investing in new technology."
Moreover, M&A offer a short-cut to access an existing user base or community, Bajpai suggests, contributing to the perception that M&A deals are “the most viable and fastest way to grow” in the new space.
Nonetheless, there are specific “challenges” posed by the new sector, he added: while Initial Coin Offerings (ICOs) tokenize incentives, ownership, or a stake in a developing platform or service, institutional investors may prefer to buy a traditional equity stake in a given project, rather than invest in the associated token.
Other commentators have expressed similar views that the bear market is viewed as a favorable moment for institutional entry into the space; commenting on Twitter earlier this month, venture capital investor Garry Tan argued that the “crypto winter […] makes it safer for super-long-term oriented Yale-model institutions to enter at a price that isn’t dangerous.”