Mergers and Acquisitions Intensively Geared by Bitcoin Price Slump, JMP Securities Reveal | Crypto
For over a year, global crypto-community has been kept awaiting with their fingers crossed for Bitcoin and the rest of plummeting cryptocurrency market to upsurge. However, so far the cryptocurrency market has been following a bearish trend whereas major sell-offs fueled by heavy investor pessimism were flooding the industry.
At the first glance, it is barely a perfect investment environment, isn’t it? However, a recent research made into the cryptocurrency-related business by JMP Securities proved it to be truly enticing, since the past year has witnessed a dramatic increase in merger and acquisition activities.
The data reveals that in a wake of the prolonged market decline, investors have simply shifted their focus from infamous Bitcoin to the businesses that somehow involved into the crypto-sphere. For this unusual tendency, JMP Securities named several reasons.
Token Values Pegged to Bitcoin
First of all, it was found that token values associated with startups have remained correlated to Bitcoin rather than actual company value. A vast majority of crypto companies and token-based startups have seen their value tethered to the performance of the number one cryptocurrency by market capitalization. It is pretty obvious given the fact that Bitcoin is an elder statesman compared to most of the crypto industry.
Satya Bajpai, who leads blockchain and digital assets investment banking at JMP, said:
“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.”
Therefore as Bitcoin price has been falling, the same downward was experienced by the Bitcoin-tied companies that lost half of the value following lead of the largest digital coin in terms of market capitalization.
A “Land Grab” Approach
Another reason underlying such a surge of M&A activity was dubbed as a “land grab” approach. While Bitcoin is on a losing streak, the blockchain technology makes one breakthrough after the other ultimately gaining the world-wide acceptance and prestige. Lots of technical and financial giants encourage the development of blockchain-devoted units to embrace industry’s breakneck pace and keep their competitive edge.
However, it is known that to buy something already running is far less resource-consuming than to built some of your own from a scratch. Consequently, companies seeking to save on time and efforts choose to acquire or merge with the existing entities.
Bajpal describes the current strategy adopted by most investors as a “land grab” approach, where they are compelled to buy rather than build. Explaining that building takes quite a long time, he says:
“This industry is like a treadmill — the only way to keep up on a treadmill is to keep running by investing in new technology.”
He also added that the strategy encompasses a land grab for talent as the new entity benefits from having employees with business and technical backgrounds since nowadays to hire experienced blockchain engineers is not an easy task.
Moreover Bajpal stressed that users and customers of an acquired startup are on-boarded almost immediately through an takeover.