Blockchain Rech Companies and Exchanges and Crypto Miners Reveal Strong M&A Activity

by Arthur · April 19, 2023

Recent problems with crypto (the collapse of FTX in November, runs on crypto-friendly banks in March, etc.) have called into question the viability of the entire asset class. However, a closer look at the long-term performance of blockchain companies and crypto miners reduces this doubt. Financial investors have remained active and M&A activity remains strong.

This article will focus on two engines in the crypto world:

Both sectors have performed dismally over the past 12 months relative to the Nasdaq Composite Index – which has also done terribly. The chart below shows the plunge in all their market caps (with a starting value of 100 for each in April 2022).

However, this observation must be put into perspective.

First, despite the pain, investors are now assigning a similar earnings multiple to the two crypto-related sectors and the Nasdaq. (We track it using enterprise value, or EV, divided by revenue.) The mining group in particular has seen a massive uptick in this metric since the start of the year, coinciding with bitcoin’s (BTC) big rally.

Second, if we look at a broader time horizon (as illustrated below), the mining group still outperforms the Nasdaq between April 2020 and April 2023, winning 90% to 63%. The blockchain group is down 12%. Crypto miners benefited from a huge bubble in the first half of 2021 (trading between 30x and 70 EV/revenue). From early 2022 to mid-2022, these extreme valuations normalized and converged around 3.5x EV/earnings. However, the Blockchain group follows the Nasdaq quite closely, but with less volatility.

There are still a number of very active financial investors in the crypto space. In 2022, there were 2,541 venture capital (VC) investments totaling $26.2 billion in crypto or blockchain companies. Some highlights: Celestia raised $53 million in a Series B round, Matter Labs raised $200 million in a Series B and Fenix Games completed early rounds and raised $150 million.

As of Q4 2022, the top 10 VC-backed companies have raised approximately $8.45 billion over their lifetime. Coinbase topped the ranking of the most active financial investors in crypto in the first quarter of 2023 with 340 investments (including Amber, CoinDCX and CoinTracker), while NGC Ventures was in second place with 258 investments (Parami Control, Resource Finance, etc.). The top 10 financial investors are based in the US (six of them), China (three) and Singapore (one).

Despite the shock waves from the FTX bankruptcy filing in November, the ecosystem is still quite dynamic. Notable M&A deals that closed in the fourth quarter include Gleec BTC Exchange buying Blocktane for $1.5 billion, Binance buying TokyoCrypto for $225 million and Bankless buying Earnifi for $150 million.

The valuation of crypto-related companies has converged with the rest of technology, a sign that the digital asset industry is maturing. The recent crisis has cut out non-viable players and investors are adopting a less speculative attitude towards this asset class. As crypto mining exemplifies, there may be room for certain sub-sectors of crypto to deliver superior performance compared to their peers. Of particular interest are the blockchain security platforms – such as Fireblocks, Taurus or Copper – that offer solutions to protect digital assets such as crypto. Valuations will be supported by specialized private investors and M&A activity driven by consolidation plays at an international level, either by geographic or technological consolidation.