Cryptocurrency operators set for consolidation in fragmented Asian market, Binance says
- Recent deals suggest a pick-up in M&A as Binance, Gojek expand footprint in region
- Higher trading volatility, stricter anti-money-laundering rules could raise more regulatory requirements
M&As in the industry plunged 76 per cent to US$451 million in 2019, with the bulk of transactions involving exchanges, wallet and payment services, according to a report published by PwC on Monday.
The number of deals fell 40 per cent to 114, with the US accounting for half of them while Asia’s share increased to 22 per cent from 14 per cent. Binance, which operates the biggest crytocurreny exchange, bought data provider CoinMarketCap last week, adding to the nine transactions it completed in 2019.
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“In Asia, we are interested in exchanges that have existing banking relationships, which enable them to accept trading in local fiat currencies,” said Zhao Changpeng, chief executive of Binance. He is also keen on e-commerce and payment services companies backed by blockchain technology.
Senior executives at some exchanges said stricter oversight could intensify this year as the industry fails to shake off the perception – and in some case, real incidences – of money laundering, terrorist financing and security flaws within its infrastructure.
With Singapore and Hong Kong tightening anti-money-laundering rules in the industry, Zhao expects smaller exchanges to struggle with the cost of keeping up with the demand.
There will be consolidation as higher regulatory requirements make it harder for smaller exchanges to survive, Zhao added. Apart from Binance, recent deals suggest interest is growing.
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Gojek, an Indonesian on-demand platform operator, bought a stake in Philippine cryptocurrency wallet operator Coins.ph for US$72 million in January. Binance paid US$8 million for Indian exchange WazirX last November.
The appetite among more cash-rich cryptocurrency exchanges to swallow up smaller rivals and invest in new businesses has come as trading of bitcoin and other tokens spiked in March, a boon to many trading platforms.
Daily turnover of bitcoin reached a record US$75.9 billion on March 13, according to data provider Cryptocompare. In tandem with traditional financial assets, Bitcoin has slumped 31 per cent from last month’s peak amid concerns about recession due to the coronavirus pandemic.
As a comparison, that is about four times more than the daily turnover of equities on the Hong Kong stock exchange in March.
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“We usually spend about a quarter of our profit on investment opportunities every year, as we grow our portfolio of businesses beyond just trading,” said Zhao of Binance, which made US$180 million in net profit in the final quarter of 2019.
Interest in virtual assets among institutional investors is also helping Hong Kong-listed BC Group expand its ownership base, chief executive Hugh Madden said.
The group, which owns the OSL cryptocurrency brokerage, raised HK$280 million (US$36 million) in February through a share placement to investors including US fund manager Fidelity International.
“We are certainly on the lookout for any opportunities to inorganically accelerate our [services and products] distribution and client acquisition,” Madden said.
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