By Robert Hackett, Jeff John Roberts, and Jen Wieczner
November 5, 2018

In today’s cryptocurrency landscape, it’s striking how many companies offer the same services. There are numerous exchanges, multiple wallet providers and, heck, there’s even a glut of crypto media outlets.

When times are good—think $20,000 Bitcoin—such plenty isn’t a problem. The pie gets bigger, customers pour in and everyone grabs a piece of the market. What about now? Prices are stuck in a gutter, public interest in crypto has waned, and trading volume is down 90% in some quarters.

Right now, it feels there are too many players on the board and—as with any industry downturn—consolidation is a logical response. In a possible sign of things to come, Korea’s NXMH last week acquired the venerable Luxembourg-based BitStamp exchange. More consolidation feels inevitable. Might rivals Coinbase and Circle, which recently partnered on a stable coin, grow closer? Will there be mergers among the horde of companies offering enterprise blockchain?

To get a sense of what might happen next, I turned to Michael Sonnenshein, who heads Grayscale Investments, which is part of crypto consortium giant DCG. Does he see the downturn leading to a wave of consolidation in the crypto industry?

“I don’t necessarily think price decline is what opens the gateway to consolidation or M&A. But there will be an acceleration of consolidation among exchanges, then also among custodial and wallet solutions,” Sonnenshein said.

He described the current state of crypto as a land grab for territory, and noted it’s too late for companies to build significant market share through organic growth. Sonnenshein added, though, that crypto services are not a winner-take-all market. Instead, we’re instead likely to end up with a handful of big players dominating different sectors.

“Based on the traditional financial industry, where custody and exchange providers consolidated, there will be a couple key players and a narrative that their size will be better able to serve key segments of the market,” he said, pointing to how a handful of giants—BNY, Fidelity and Northern Trust—have come to dominate the conventional custodial services industry.

This notion of the crypto industry evolving in the same way as the old-line financial world is intriguing and just a wee bit ironic. After all, wasn’t the original crypto dream all about decentralization?

Thanks as always for reading—more musings below.

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Jeff John Roberts
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