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Crypto M&A was flying—but has it just been grounded?

It was all going so well for EMEA’s burgeoning crypto industry. The explosive growth in blockchain technologies and cryptocurrencies translated into an M&A boom that now looks like it may be cut short.

Records were broken last year—EMEA alone saw more than 40 crypto deals worth €10.1 billion in aggregate. These include a €6.9 billion SPAC merger between UK digital asset exchange Bullish and Far Peak Acquisition Corp, and PE firm JC Flowers’ €253.8 million minority investment in forex and crypto exchange LMAX.

This year was looking to be another stand-out for crypto M&A in the region. At least 16 EMEA transactions with an aggregate value of €987.5 million were announced in Q1, up from 10 deals worth €626.9 million year-on-year. This compares with six transactions worth €954.1 million in Q4 2021.

Most impressive was the fact this was happening against the backdrop of the tech-heavy NASDAQ enduring a steep sell-off and the pied pipers of the crypto market, bitcoin and ethereum, trending down from their November peaks.

Smart money steps in 

Once the preserve of arms and drug dealers on the Silk Road—the former so-called dark web—crypto has gone mainstream and drawn institutions like flies amid its rapid adoption among young retail investors.

Smart money is interested in the potential for tokenisation, putting traditional securities like equities and bonds on the blockchain so they can be traded 24/7 within the crypto ecosystem without the need to leave. Unlike capital markets, crypto never sleeps.

This institutional integration can be seen in Deutsche Boerse’s majority acquisition last year of Crypto Finance and Robinhood’s purchase last month of crypto platform Ziglu. In some cases, crypto firms have been the ones bridging the institutional divide, such as BCB Group with its recent acquisition of German lender Sutor Bank.

Unsurprisingly, the crypto boom has brought with it new rules and regulations, which can be a double-edged sword. On the one hand, regulation may impact the business models of crypto natives and increase costs. On the other, it will make institutions more comfortable with the space.

Notably, European lawmakers are proposing that crypto asset services be brought fully into the scope of anti-money laundering rules. Brussels is also working on a Markets in Crypto-Assets Regulation as part of its digital finance strategy.

Gainful deployment 

EMEA appears to be rich with opportunities to deploy capital, including an array of companies looking to raise cash. Scribestar, Luso Digital Assets and Arf are some of the European crypto and blockchain start-ups reportedly planning to tap investors.

In addition, US crypto exchange Coinbase has been in discussions to acquire Turkish rival BtcTurk, a deal that could value the target at €3 billion or more.

Crypto adoption is accelerating in Turkey as the lira crumbles. The fiat currency lost around half of its value against the dollar last year amid crippling inflation. According to Coinbase, crypto exchange volume in the country soared to an average of US$1.8 billion per day in Q4 2021.

While many so-called altcoins have not had their product market fit put to the test, bitcoin is gradually being recognised and adopted by institutions as a store of value. Crucially, its fixed supply is a highly compelling feature in a world of excess money printing.

Bear, with us

This all seems well and good, but crypto is having an existential crisis. Bitcoin and ethereum bottomed out in early January and managed to start trading up, even rallying in mid-March with the war in Ukraine raging in the background. But it didn’t last long.

By May, crypto price action began to look weak and was then dealt a hammer blow when UST, a stablecoin that is supposed to hold the value of a dollar, depegged. This sent its associated blockchain, Terra Luna, into a tailspin as UST holders were guaranteed US$1 of luna per UST, the project having to mint new luna tokens en masse.

All in all, over six trillion luna tokens were issued and went into circulation, causing the former top-10 crypto by market cap to lose more than 99.999% of its value in a matter of days.

The true scope and ramifications of the luna meltdown are still being assessed and will encourage a regulatory clampdown on algorithmic stablecoins at the very least.

If this growing space wasn’t in a bear market before, that has now been confirmed as bitcoin has lost long-term support levels. Liquidity has dried up on various blockchains as investors flee in panic.

Participants are now soul searching. Is this the standard crypto winter many diehards have weathered before and that will thaw with the change in seasons? Or is this time different?

Bitcoin has only existed in an easy-money environment, having been invented in 2009 in the wake of the global financial crisis. Could it be that crypto was the timely beneficiary of quantitative easing? If so, what happens as the world tightens its belt?

Dealmakers will be asking themselves the same questions.

Top EMEA cryptocurrency M&A deals (2021-2022)