With Bitcoin plummeting and the tech sector knocked back on its heels, spring and summer turned into crypto winter. A flurry of deals ensued.

Troubled lenders like Celsius and Voyager filed for bankruptcy and stronger hands, particularly giant global exchange/trading empire FTX/Alameda, pounced with buyout bids and strategic lifelines. Now, amidst the stunning collapse of FTX/Alameda, activity in the blockchain sector is even more focused on distressed properties; and while the dealmaking pace is off compared to 2021, there nevertheless remains plenty of action across a broad spectrum of categories.

Mitzi Chang, Goodwin

“It is going well beyond just distressed deals,” says Mitzi Chang, of crypto-themed mergers and acquisitions. Chang is a partner at the law firm Goodwin and co-chair of its fintech and digital currency practice, as well as its blockchain practice.

“You have strategic buyers representing a wide swath of traditional companies –tech, finance, all different industries –and with leaders who have recognized that the crypto space is maturing,” she says. “And that it is on a path toward clearer regulation and wider acceptance.”

Digital Derby

An illustrative transaction: This past June, eBay announced a deal to acquire KnownOrigin, a platform for non-fungible tokens (NFTs). It’s a logical but still bold move that underscores a growing trend: big companies getting their digital money game on.

Another driver in these chilly, volatile times –indeed, Bitcoin, since the fall of 2021, has lost two-thirds of its value, plummeting from $69,000 last November to below $20,000 as of early October–is the aggressive push among trading firms to become more diversified, and more squarely hitched up with institutional wagons.

An example of this trend is Blockchain.com’s purchase of Altonomy, said to be the first dedicated sell-side trading desk, according to Dario de Martino, M&A partner at Allen & Overy and co-chair of the firm’s global blockchain and fintech practice.

“Despite crypto winter setting in, M&A activity is still showing strength and companies are still seeing dealmaking benefits and seizing this moment,” de Martino says.

Dario de Martino, Allen & Overy

While the total number of crypto deals in 2022 – there have been an estimated 80 in the first seven months – may not reach the peak of 2021 (about 220 deals for that full year), it is likely to be on track to exceed the total number of crypto deals in 2020, and exceed previous years, de Martino adds.

Deal activity in the crypto space was until recently driven by venture capital and companies inside the ecosystem.

“But we are now beginning to see a convergence of traditional financial services companies looking to align themselves with crypto and blockchain firms,” says Adam Waite, managing director at D.A. Davidson, who specializes in fintech and the digital asset ecosystem within the firm’s technology investment banking team.

Credit Card Spree

Visa has spent the past several months striking more than 70 crypto-related partnerships, most recently teaming up with FTX to offer debit cards in 40 countries with a focus on Latin America, Asia and Europe. On Nov. 14, Visa pulled the plug on those plans

Meanwhile, with Bitcoin prices diminished, Grayscale in early October launched a new, private co-investment opportunity, Grayscale Digital Infrastructure Opportunities LLC (GDIO), to purchase mining equipment at distressed levels.

Bargain hunting opportunities appeared to be a priority for FTX which in early October was still perceived as operating from a position of strength, and even said to be in the hunt for Huobi, a global exchange founded in China but having been banned there, operates out of a headquarters in the Seychelles. In the end, though, a majority of Huobi was acquired by About Capital. That was a deal completed in early October.

As for About, it is a Hong Kong-based fund management firm started by Ted Chen; Chen founded Greenwoods Asset Management, a Chinese hedge fund.

Bloomberg reported that Huobi’s founder Leon Li was looking to sell his majority stake for over $1 billion, valuing the exchange at $3 billion. Huobi can’t operate in China. Nor is it viable in the U.S. However, the exchange is reportedly interested in markets such as Brazil and Turkey.

Global Footprints

Geographic expansion is an obvious deal catalyst.

In the past two years, FTX has made six acquisitions, including, notably, its purchase of Liquid, Japan’s largest exchange in terms of trading volume, according to Bitcoinist, a research website.

Liquid on Nov. 15 officially announced a halt of withdrawals, citing its parent company’s bankruptcy.

In that same span, Coinbase made six acquisitions. Among them was the purchase of Turkey’s largest exchange, BTC Turk.

“One thing that crypto exchanges always have is an ample supply of cash,” Bitcoinist says. “This is because their business model is one that generates a lot of cash on a daily basis, leaving these exchanges in a position to be able to quickly process an acquisition when an opportunity comes up.”

As of August of 2022, Coinbase all told had spent $135 million on 22 acquisitions and 245 strategic investments, according to Tracxn, another research website.

Coinbase’s spree hasn’t slowed amidst a market correction, one that in part owes to macroeconomic headwinds.

In early October, Coinbase, leaning out headcount-wise while still picking its growth spots, obtained regulatory approval to do business in Singapore, giving it a much-desired beachhead in the Asia-Pacific region, an organic if nascent footprint upon which to build.

Industry members expect the market for leading cryptos to continue to be driven by U.S. Federal Reserve policy in the near term. It’s kind of a cruel, centralized-banker-bred irony for a decentralized digital money space.

However, D.A. Davidson’s Waite points out, “institutions remain hard at work building the infrastructure to support digital asset adoption at scale. I would anticipate that further clarity around pending regulation will provide a meaningful catalyst for institutional adoption in the next 12 to 18 months.”