Bitcoin and all major cryptocurrencies have enjoyed a huge increase in prices recently, along with extensive growth in both acceptance and interest in cryptocurrency as a replacement for and a hedge against traditional money and finance. The increased demand is driven by millennials and institutional investors.
Ask two experts about mergers and acquisitions in the cryptocurrency sector, and you’ll probably get two different answers.
There are those that believe that there are very few acquirers in this space. This view is explained by the thought that Coinbase is the largest cryptocurrency company and most apt to look for acquisitions. Because Coinbase is one of the handful of companies that are of a size that can acquire other companies, some anticipate very little M&A over the next few years in cryptocurrency, when compared to the outlook for other areas of technology.
Traditional players, this view holds, will hold off until the ecosystem is more mature and the return is more apparent to investors.
On the other side of the coin, the opinion is that cryptocurrency companies will eventually dominate tech and financial services. After the issues with government regulation are sorted out, these experts see three possible avenues for M&A-powered growth:
The Big Wall Street firms start acquiring cryptocurrency firms;
The Big tech companies start acquiring cryptocurrency firms; or
Big cryptocurrency firms become the new big tech and Wall Street firms.
According to the theory of disruptive innovation, this camp sees the third possibility is the most likely result: This is a niche market that it doesn’t make business sense for big tech or Wall Street firms to serve.
But as that niche grows, the firms that adapted to serve that category will be better suited than incumbents and overtake them.
There’s No Denying that Cryptocurrency is Thriving
No one can deny the fact that institutional demand for bitcoin is skyrocketing during the coronavirus pandemic. For example, multi-billion dollar bitcoin and cryptocurrency-asset manager Grayscale report its biggest-ever quarterly inflows of almost $1 billion.
In addition, Integrated Ventures, which has previously involved in the cryptocurrency sector and now eyes major opportunities, announced the execution of a $1,000,000 Term Sheet with Eagle Equities, LLC. The deal is worth $1.08 million. That investment will be used to expand cryptocurrency operations and to support future acquired operations, including various cryptocurrency mining concerns.
Integrated Ventures, Inc. operates as a diversified holding company called “The Company.” Through its subsidiaries, acquires, operates, and invests in health care, e-commerce, mobile technologies, transportation, financial, and consumer goods markets.
OCC says that U.S. Banks and Federal Savings Associations Can Hold Cryptocurrency
Another reason for the optimism is that the Office of the Comptroller of the Currency stated recently in that letter that it “concludes that providing cryptocurrency custody services, including holding unique cryptographic keys associated with cryptocurrency, is a modern form of traditional bank activities related to custody services. cryptocurrency custody services may extend beyond passively holding ‘keys.’”
The OCC has allowed banks and thrifts to maintain custody of digital assets for safekeeping since 1998, but cryptocurrencies’ legality has been questionable in the banking industry.
“From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today,” said Brooks. “This opinion clarifies that banks can continue satisfying their customers’ needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency.”
The announcement in Interpretive Letter No. 1170 is considered an answer to a bank’s request for clarification on this issue. Overall, the letter “reaffirms the OCC’s position that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law.”
The letter also describes cryptocurrency custody as “a permissible form of a traditional banking activity.” The definition also applies to cryptocurrencies held by banks in a fiduciary capacity, such as a trustee, executor of a will, or an investment advisor.
The OCC letter also said the agency “recognizes that, as the financial markets are increasingly digitized, the need will increase for banks and other service providers to leverage new technology and innovative ways to serve their customers’ needs.”
In this way, “banks can continue to fulfill the financial intermediation function they have historically played in providing payment, lending, and deposit services,” the letter concluded.
This continued legitimizing of cryptocurrency in the traditional financial space may mean more M&A activity.