Latest crypto ETP acquisition deal points to broader trend

Consolidation within the crypto ETP space continues with another move by Bitwise, reflecting a broader industry trend that appears poised to continue.

CoinShares closed its deal to acquire Valkyrie’s US-centric ETF business in March. Then last week, crypto asset manager Bitwise bought ETC Group.

Bitwise followed up that purchase by revealing on Tuesday its pending deal to acquire the assets within the Osprey Bitcoin Trust — currently totaling roughly $120 million.

For Osprey shareholders, this deal “will lower costs and increase liquidity while providing continuity to their investment,” Bitwise CEO Hunter Horsley told Blockworks.

Whereas Bitwise buying London-based ETC Group boosted its European presence, the buy of Osprey assets is set to bolster the US-listed BITB’s current $2.4 billion asset base. The deal is expected to close later this year.

Bitwise — long known for launching the Bitwise 10 Crypto Index Fund in 2017 — has scaled meaningfully in the past year via its ETF launches.

Net inflows into Bitwise Bitcoin ETF (BITB), at about $2 billion since its launch, rank fourth — behind BlackRock, Fidelity and Ark Invest/21Shares. Bitwise trails only the former two companies when it comes to money entering its spot ETH offering, reeling in $312 million during the products’ first month on the market.

“Bitwise is certainly one of the leaders as a crypto-asset specialized asset manager and their efforts to expand via M&A is reasonable and expected,” said Eric Risley, managing partner at M&A advisory firm Architect Partners.

As for other transactions on the horizon, Horsley noted: “We have a lot to do in the US and Europe, but we will always be open to new opportunities where they make sense.”

Despite Bitwise continuing to scale its product set, Risley noted the key to asset management rests in the ability to distribute products to investors.

“Distribution is where existing, multi-asset managers like BlackRock have a significant and likely sustainable advantage,” he added.

Marking a broader trend

The latest Bitwise deals, combined with CoinShares’ buy of Valkyrie’s ETF business earlier this year, mark somewhat of an M&A trend within the crypto ETP realm.

Ruslan Lienkha, chief of markets at crypto platform YouHodler, told Blockworks he believes this trend is a “logical progression” of crypto’s integrations into traditional financial markets.

Recent examples of traditional finance players acquiring or investing in crypto firms, he noted, include: Robinhood’s buy of crypto exchange Bitstamp; Deutsche Bank’s investment in Taurus; Standard Chartered’s stake in Zodia Custody; and HSBC’s partnership with Ripple-owned Metaco.

“This marks the beginning of a broader trend in the industry,” Lienkha said.

Small and medium-sized companies, including crypto firms, often lack the resources to become more regulated [traditional finance] institutions, he added. As a result, such entities often choose to be acquired by more experienced and larger players in the market.

“For large financial institutions, it is much easier to expand into the crypto space than for a native crypto company to transform into a fully regulated financial institution,” Lienkha said. “Therefore, I expect this trend of consolidation to continue at least for a few more years.”

A modified version of this article first appeared in the daily On the Margin newsletter. Subscribe here so you don’t miss tomorrow’s edition.

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