The crypto has lost 70% of its total market capitalization in 2022 with the price of Bitcoin and other large cryptocurrencies crashing by over 40% in the past two months alone. The downside price action has not had an impact on the growth of the nascent industry.
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According to a report from Architect Partners posted by Arcane Research, crypto Merger and Acquisitions (M&A) deals matched last year’s metrics. As of June 31, there have been 92 deals in and seem poised to end the year at 184, slightly higher than 2021.
In Q3 2022, this metric could soar on the back of attractive deals from crypto companies in distress. In the first half of 2022, driven by a decline in the price of Bitcoin and other cryptocurrencies, the collapse of the Terra ecosystem, and the default or failure of major crypto investment firms, big companies in the sector have requested bailouts from other companies in a better economic position.
FTX, Binance, Coinbase, and other behemoths in the industry have taken advantage by acquiring companies once valued in the billions of dollars for steep discounts. This trend will extend in the second half of this year.
Arcane Research noted the following on the Architect Partners reports and how the legacy of crypto growth in transactions points to maturation for the nascent industry:
(…) The report noted a sharp growth in bridge transactions, i.e., transactions between legacy and crypto business. So far into 2022, 49% of all crypto-related M&As have been bridge transactions. This a substantial growth from 2021, where 28% of the deals were transactions (…). In other words, legacy businesses are accounting for a larger share of the M&A activity in the market which reflects a long-term positive outlook on the industry (…).
Why Crypto Continues To Expand Despite Persistent Bearish Market Trend
Looking at this growth in more detail, Architect Partners noted an impressive expansion of the crypto sector. The nascent industry recorded a -3% growth in its number of M&A deals in 2019 and a 2% in 2020 with 58 and 59 deals completed respectively.
The industry was going through a multi-year bearish trend which set back the price of large cryptocurrencies by as much as 80%. In 2021, the trend experienced a 180 degrees shift with a 205% growth, and 180 deals completed with a 500% growth in terms of capital injected into the sector.
What changed from 2019 to 2021 and the current year? Probable the arrival of major crypto companies such as FTX, Binance, and Coinbase, as mentioned. These players have learned from previous bear markets and seem ready to leverage the current downside trend in their favor.
The report notes at least 8 acquisitions for Coinbase in the past 24 months. This number is closely followed by FTX with 6 acquisitions, and 5 from Gemini. Unsurprisingly, crypto trading, exchange infrastructure, mining, and data analytics have been the “most mature and likely most active” sub-sector in 2022.
Coinbase also leads as the most active investor in 2022 with over 50 investments alongside Animoca Brands. Polygon, Solana, Sequoia Capital, Pantera Capital, and others followed with 26 to 50 investments in the first half of 2022.
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Despite its M&A deals, Coinbase stands in a sector with the worst performance over the same period. Crypto investment and trading platforms record a 79% loss during this time while Bitcoin and Ethereum record a 55% and 67% loss respectively.