The Age Of Consolidation

VeradiVerdict - Issue #68

Last week, Anchorage, one of the more well-known digital asset custodians, announced that it acquired one of our portfolio companies, Merkle Data, and launched trading. Merkle has a strong team from top universities and Silicon Valley tech companies and built an advanced risk and data solution that was servicing institutional investors. The acquisition/partnership is a strong fit because both companies have a shared vision of bringing security, tools, and services for institutional investors to access digital assets.

More broadly, in my annual predictions, I predicted that 2019 would be a year of consolidation in the crypto space and I believe it will continue in 2020. So far, some of the largest acquisitions have been in the exchange/wallet space (Bitstamp, Korbit, Coins.ph, and Crypto Facilities. We have even seen one of our portfolio companies, Chain get acquired by the prominent token project Stellar.

My friends at TokenData published a pretty data-driven report on acquisitions.

Here are a few acquisition trends that should be upcoming:

  1. Exchanges becoming even more active in acquisitions

Exchanges have become the most successful companies in the space so far because they provide needed liquidity and access to cryptocurrencies. We’ve seen some of the largest US exchanges already making acquisitions:

More acquisitions will include ones for talent and revenue expansion (trading, compliance/data, and geography)

  1. Expansion and consolidation in the custodian sector

Providing security/custody of funds in the crypto space has solved an important problem for both retail and institutions. While security and licensing has been a barrier to entry for custodians, competition among startups and legacy institutions in this sector are likely to increase, bringing down fees. Thus, we will see startups starting to overlap in these categories:

  • Custody

  • Staking - earning tokens from validating

  • Trading - order execution

  • Settlement - quick/secure transfer of funds between counter-parties

  • Lending

  • Insurance

This will lead to the more successful or well-funded ones being the acquirers.

  1. Larger enterprises and institutions entering into the space and needing talent/technology

  • Tech/Payment companies - We’ve already seen Facebook announce Libra and hoping to bringing banking and payments to their suite of applications. The company acquired Chainspace and could be in a strong position to do more. Airbnb made an acquisition of one of our companies, ChangeTip. Square has been pretty vocal about Bitcoin while Twitter has set up a team to look into a decentralized version of the social network. In addition, crypto has been used for a remittance rail so payment companies like Visa, Stripe, and Paypal could be interested in making acquisitions.

  • Asset Management Firms - Banks looking to get into crypto-related revenue streams like custody, trading, and lending. Other financial service firms seeing operational benefits of using blockchain. JP Morgan’s Quorum projects is a permission-blockchain that has over 50 projects building on top of it while Goldman Sachs has invested into blockchain companies such as Veem, Circle, and Bitgo.

  • Governments - China announced that they would be launching their own digital currency sometime this year. The President of China also stated his support for China taking a lead in exploring using the blockchain for enterprise. I wouldn’t be surprised if other governments consider launching their own digital currency or other blockchain projects and therefore would need talent and technology to help accelerate their process.

  1. Token projects acquiring other token projects

2017 was the year of the ICO bubble with a large number of token companies raising capital. Companies usually raise capital to sustain them for 2-3 years so we are likely going to see projects from that era needing to find a home. It will be fascinating to see how these deals will be structured, as I can see a mix of equity and tokens being exchanged.

Pantera’s Role

Since Pantera has a large portfolio, we can help facilitate acquisitions within the portfolio. Being focused on the ecosystem for a while, we can also help our portfolio companies explore acquisition with external parties, whether it’s being acquired or acquiring other companies.

If your company is looking to acquire or be acquired, feel free to reach out.


DIGESTS

How Was It Possible for Bitmain to Oust Its Largest Shareholder Overnight?

Co-founder Ketuan “Micree” Zhan was stripped of his director role at not only Beijing Bitmain Technology, but the cryptocurrency miner maker's parent entity, BitMain Technologies Holding Company, corporate records show.


NEWS

Gemini ventures into insurance business - launches ‘Nakamoto’ to provide $200M crypto coverage

Gemini has launched a “captive” insurance company, dubbed “Nakamoto”.

CoinDesk at WEF 2020: Crypto Themes to Watch as Davos Gets Underway

CoinDesk will be on the ground in Davos from Jan. 20–24 chronicling all things crypto at the annual gathering of the world’s economic and political elite.


IN THE TWEETS

vitalik.eth@VitalikButerin
Disappointed at people replying to this with "crypto is what it is, it's your job to be super-careful and write down backup seeds in three places". We can and should create better wallet tech to make security easier. Eg. here's a social recovery ERC WIP:
github.com/ethereum/EIPs/…

Peter Schiff@PeterSchiff

I just lost all the #Bitcoin I have ever owned. My wallet got corrupted somehow and my password is no longer valid. So now not only is my Bitcoin intrinsically worthless; it has no market value either. I knew owning Bitcoin was a bad idea, I just never realized it was this bad! https://t.co/6SJvDJOZU6

REGULATIONS

Why the World Economic Forum Is Creating a Blockchain ‘Bill of Rights’

Sheila Warren is the Head of Blockchain and Distributed Ledger Technology at the World Economic Forum. Sumedha Deshmukh is a Project Specialist on the Blockchain and Distributed Ledger Technology team at the World Economic Forum. The opinions expressed here are their own.


NEW PRODUCTS AND HOT DEALS

Plasma Group researchers raise $3.5M from Paradigm and IDEO to start new company

Former Plasma Group researchers formed a new company, Optimism, at the end of 2019, in an effort to focus on the implementation of their Ethereum scaling solution, Optimistic Rollup.

Startup Crypto Exchange Blade to Launch Zero-Fee Trading in February

Crypto perpetuals exchange Blade will be introducing zero-fee trading next month in a bid to gain market share from rivals. 


MEET WITH ME

Toronto, February 26-28, 2020

Los Angeles, March 6-9

TOKEN2049, Hong Kong, March 17-20, 2020


ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. The firm invests in equity, pre-sales/IEO rounds, and cryptocurrencies on the secondary markets. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.

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