HomeBusinessFor Crypto Survivors, There Are Deals to Be Had

For Crypto Survivors, There Are Deals to Be Had


In the rubble-strewn land of virtual currencies, cash is king.

A blowout in the cryptocurrency market sparked a wave of layoffs, punished valuations and drove some companies to bankruptcy. Now firms that still have capital are gearing up for a shopping spree.

“This is a very ripe scenario for some M&A,” said Jalak Jobanputra, the founder and managing partner of crypto-focused venture-capital fund Future Perfect Ventures.

Last week, crypto-lender Nexo agreed to acquire a Singapore-based peer called Vauld. While terms of the deal weren’t disclosed—Vauld had raised $27 million since its founding in 2018, according to research firm PitchBook—Nexo framed the deal as one in which a stable company with means was coming in to help a foundering sector.

“Some companies are in better shape and have been preparing for this,” Nexo co-founder and managing partner

Antoni Trenchev

said. “Down cycles are part of the business cycle.” Nexo is working with two Wall Street banks, Mr. Trenchev said, and is in talks with several other companies about potential deals. The trickiest part, he said, is figuring out which firms are salvageable.

While he didn’t disclose names or possible sale prices, he did say that valuations across the sector were down significantly.

Another active buyer has been

Sam Bankman

-Fried. In June, the 30-year-old billionaire’s crypto exchange FTX struck a deal with lender BlockFi that included an option to buy the company for up to $240 million. The same month, his trading firm Alameda Research acquired a minority stake in now-bankrupt

Voyager Digital Ltd.

Just seven months ago, the crypto sector was riding a wave of momentum. The value of the entire sector had hit a record $3 trillion. Companies were raising record amounts of capital and the competition among investors was fierce. Crypto was becoming part of the zeitgeist as

Coinbase Global Inc.,

FTX and Crypto.com all ran Super Bowl ads.

Much like the dot-com era, though, the timing of those Super Bowl ads marked a peak. The price of bitcoin dropped steadily through the first four months of the year. Trading volumes fell sharply, curtailing revenue for exchanges like Coinbase, which reported a surprisingly wide first-quarter loss. Layoff notices started proliferating.

Things got worse in early May. The collapse of two linked cryptocurrencies called TerraUSD and Luna wiped out a combined $60 billion worth of value. That collapse sparked a chain reaction of failures across the sector.

When cryptocurrency lending platform Celsius froze user accounts amid a plunge in valuations, it sent ripples across the industry and raised questions about what happens to user assets if a crypto platform files for bankruptcy. WSJ’s Vicky Ge Huang explains. Photo illustration: Jordan Kranse

The companies left have watched their valuations plummet. Publicly traded companies are down anywhere from 50% to more than 90%. Voyager’s stock fell about 96% before it declared bankruptcy. The same dynamic is likely occurring for private companies, as people in the market say valuations are down broadly. For example, BlockFi boasted a $5 billion valuation just six months ago.

With valuations down so sharply, firms with money in the bank are going to work. Tagus Capital, a U.K. crypto venture-capital firm, is looking to deploy $100 million into distressed crypto assets, said Ilan Solot, a partner at the company. He said the team is still figuring out which companies to take stakes in but that the repricing of assets, in part because of issues facing Celsius Network LLC and Three Arrows Capital Ltd., has created opportunities to buy distressed assets.

Mr. Solot said they are mostly focused on investing in cryptocurrency-infrastructure companies, such as crypto exchanges as well as wallet-technology and payment firms.

Still, overall deal making in the crypto sector has slowed thus far. The number of M&A deals and venture funding fell across the second quarter as conditions deteriorated. In April, there were 23 M&A deals, according to PitchBook. In May there were 20. In June, there were 17.

Venture-capital eased off as well. There were 249 deals in April, according to PitchBook. That fell to 180 in May and 157 in June.

The fallout is likely to drive away weaker startups as well as venture-capitalists who came in trying to ride the hot wave, Ms. Jobanputra said. A lot of the weaker crypto-focused funds “will quietly go away,” she added.

“There was just a lot of noise in the market the last couple of years,” she said.


What questions do you have about the future of crypto? Join the conversation below.

That leaves the field more open to the survivors. Binance, the largest crypto exchange by trading volume, is eyeing anywhere from 50 to 100 deals of varying sizes, some being investments and others acquisitions, founder and Chief Executive

Changpeng Zhao

told Yahoo Finance.

Mr. Zhao wasn’t available for comment.

That would be a big increase for the company. Its venture arm, Binance Labs, has made 26 investments so far this year, according to PitchBook. Its largest was a $200 million investment in Aptos Labs, which publishes blockchain-based software for developers. Its most recent was a $3 million investment in AI software creator Magic Square in July.

The crypto crash is a needed wake-up call for a sector that had gotten too heady, said Chris Lehane, chief strategy officer of venture fund Haun Ventures, which raised $1.5 billion in March and focuses on early-state companies. Ideas that were little more than a drawing on a cocktail napkin were getting funded, he said.

“We had almost a decade of free money,” he said. “Now people are going to need to demonstrate they have real ideas.”

Write to Paul Vigna at [email protected]

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