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Crypto Crash: Dealmaking is down but not out

Crypto Winter may be here but dealmaking has still been happening as investors place long-term bets.

In April, Wyre, a crypto payment services firm, sold for a reported USD 1.5bn to Bolt Financial, an online payments technology company. Wyre’s sale was the largest M&A transaction that did not involve a special purpose acquisition company (SPAC).

As Bitcoin’s price soared in 2021, so did mergers and capital raises in North America’s crypto sector. Last year saw 75 deals totaling USD 18.5bn, according to Dealogic. So far this year, 39 transactions worth USD 3.8bn have been announced, showing dealmaking is down but not out. That may come as something of a surprise given Bitcoin’s price plunge since last November’s all-time high of nearly USD 69,000 to below USD 22,000 now.

What’s next?

The Wyre deal illustrates two things. First, traditional payment service providers (PSPs) want to own a crypto capability. Nuvei’s [TSX:NVE] USD 250m deal for SimplexCC, an Israel-based fiat-to-cryptocurrency payment gateway, in May 2021 highlighted that too. Besides Nuvei and Bolt, other PSPs that may move into crypto are Shift4 Payments [NYSE:FOUR], PayU, PaySafe [NYSE:PSFE], Fidelity National Information Services [NYSE:FIS], DLocal [NASDAQ:DLO] and Adyen [Euronext:ADYEN].

Second, the Wyre deal shows private companies are more richly valued than public ones. MoonPay, which also offers an on-off ramp between crypto and fiat currencies, last November raised USD 555m at a USD 3.4bn valuation. One crypto payments company that can be acquired for a reasonable sum is Banxa [TSXV:BNXA], which has a CAD 55m market cap. Banxa is working with Citi to field acquisition interest from at least two PSPs, which could lead to a sale, says a source. “With the value of Bitcoin down and valuations of crypto companies down, many buyers are looking to make their move now,” says the source. Banxa declined comment and Citi did not respond to a request for comment.

Exchanges and custodians 

Many of the exchanges – think Binance, Coinbase [NASDAQ:COIN], FTX, Gemini or Kucoin – will get consolidated, adds a second executive. By contrast, companies offering custody solutions – such as metal wallets for the physical storage of Bitcoin – or digital asset investment funds will be treated with a wary eye by investors. That is because they are largely unregulated and therefore risky. By contrast, one crypto-focused company gaining attention is California’s Silvergate Capital [NYSE:SI]. It owns a traditional banking license, which means it has regulatory guardrails in place, something investors like. Plus it also offers a fiat on-off ramp that allows clients to invest in crypto. Its shares are down by two-thirds from last November’s high. A company like that could attract a bid.