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.
|Jeff John Roberts|