What Could Crypto M&A Look Like in 2022?

Mergers and acquisitions within the crypto sphere are set to heat up in 2022, industry watchers predict, after a year during which traditional financial companies executed buys in the space.

Trends that emerged in 2021 will continue into next year, Ryan McCulloch, an investment banking associate at M&A advisory firm Architect Partners, said in an interview with Blockworks. 

He highlighted PayPal’s buy of Curv, a provider of cloud-based infrastructure for digital asset security. The deal, announced in March, was worth $200 million, according to Architect Partners data.

“The acquisition of digital payment wallets and secure payment wallets is going to be huge, and there’s a continued need for that from the larger institutions,” McCulloch said. “I think most of them are making the decision right now that it’s growing so quickly they need to buy versus build.”

Donald Putnam, a managing partner at investment firm Grail Partners, said that he expects clarity about crypto from regulators, including the US Securities and Exchange Commission (SEC), during the first quarter of 2022, followed by “definitive action” in the second half of the year. 

“This paves the way for the next trend to catch fire: the beginning of mainstream infrastructure providers — the global banks and exchanges — to begin buying technology and market share by acquiring the innovators,” Putnam told Blockworks. “That second trend will favor the exchanges and disenfranchise the banks, because of the profitability and [price-to-earnings] ratios of exchanges versus banks.”

Accelerating M&A 

McCulloch noted that “bridge transactions” — deals between more traditional companies and crypto firms — rapidly accelerated in 2021. Overall, M&A deals involving at least one company in the crypto sector totaled 169, as of mid-December, he added, compared to 59 deals in 2020.

Nike earlier this month announced its buy of RTFKT, a company that creates virtual products and experiences, including NFTs. 

Trading platform Robinhood revealed a day later on Dec. 14 that it would acquire Cove Markets, which it described in an announcement as a cross-exchange trading platform that makes it easier for people to manage their crypto accounts. 

“It’s guys like Nike acquiring NFT guys, and it’s Robinhood and huge traditional guys acquiring these crypto companies,” McCulloch said. “That’s really where the value is being created and what’s driving these crazy, crazy prices.”

Among the largest deals of the year — excluding those involving special purpose acquisition companies (SPACs) — was Galaxy Digital’s $1.2 billion purchase of BitGo. The purchase of the custodian was executed to establish the digital asset bank as “a one-stop-shop for institutions,” Galaxy CEO Mike Novogratz said in a statement at the time.

The other largest deals of the year, according to Architect Partners data, include Polygon’s buy of Mir ($628 million), Northern Data’s acquisition of Bitfield ($575 million) and Siam Commercial Bank’s purchase of Bitkub Capital Group Holdings ($537 million). 

Though SkyBridge Capital Founder Anthony Scaramucci previously said he expects that a big bank frustrated by the growth of decentralized finance to buy a crypto firm such as Coinbase, the crypto platform has buying plans of its own. 

The firm revealed in January that it would acquire blockchain infrastructure Bison Trails. Emilie Choi, Coinbase’s president and chief operating officer, said earlier this month that the company would look to acquire any “incredible companies” that it sees.

Other potential M&A trends 

Banks will also look at boosting their capabilities around stablecoins, McCulloch said. 

The President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency released a report in November about stablecoins and the need to regulate them. 

It recommends that legislation should limit stablecoin issuance to entities that are insured depository institutions, including state and federal banks and savings associations.  

“We’re seeing that stablecoins are going to be partnering with banks or banks are going to be acquiring those stablecoin issuers to enable that,” McCulloch said. “We have a client in that ballpark and I can tell you every single bank is interested.”

Big banks such as Citibank, McCulloch added, produce $12 billion of revenue per year around payments, and such players will look to acquire stablecoin issuers to keep those businesses healthy.  

Citigroup CEO Jane Fraser told Yahoo Finance in October that digital assets would be part of the future of financial services and markets, noting that the company was working to connect clients to wallets and enable corporate clients to accept consumer payments.

Citi also appointed a head of digital assets in November for its institutional client group and intends to fill up to 100 additional roles to support its digital asset capabilities across the unit.

A Citi spokesperson declined to comment about the company’s potential M&A focuses for 2022. 

Traditional financial companies will look to boost their data capabilities in the crypto realm, McCulloch added.

Mastercard announced in September that it would buy crypto intelligence company CipherTrace, which has provided “blockchain forensics” for about 150 of the largest banks, exchanges, financial institutions and regulators across more than 7,000 cryptocurrency entities.

The following month, Cboe Global Markets agreed to buy ErisX, allowing for its entry to the digital asset spot and derivatives markets, including clearing and settlement. The deal size was $400 million, Architect Partners data shows. 

ErisX’s focus throughout development on robust regulatory compliance is a major driver of value to traditional financial players such as Cboe, McCulloch wrote in a research note at the time.

“Those two acquisitions really prove that these large multi-billion-dollar companies need to acquire this space,” McCulloch told Blockworks of the Mastercard and Cboe deals. “…It’s really interesting to see it play out.”

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