Going by a recently released report by the CNBC the current prolonged bear market being experienced in the Crypto sector has resulted in more organizations looking for growth opportunities through mergers and acquisitions. The report shows that the current bear market has not had a negative effect on investor confidence and that as a matter of fact has seen them look for more opportunities within the space.
Token Prices Correlation With Bitcoin
Even though the Cryptomarket has been more volatile this year and has seen the price of Bitcoin drop by more than seventy percent in comparison to its peak in 2017, data from PitchBook and JMP Securities show that this year has also seen more mergers and acquisitions take place.
Going by the findings of the report, the token values of start-ups have maintained a close correlation to Bitcoin prices instead of reflecting the true value of the start-ups. this can, however, be explained by the fact that Bitcoin is the gold standard for the Crypto industry and that it has been around for a decade.
Satya Bajpai, who is a consultant on mergers and acquisitions and also heads JMP’s blockchain and digital assets investment banking in his comments to CNBC stated that even in the case of big businesses, the tokens have always remained reciprocally related to the price of Bitcoin which in turn provides the ideal situation for strategic acquisition.
Benefits Of Acquisitions
The JMP report reveals that more investors are looking towards the option of mergers and acquisitions to starting up new firms n divisions from the bottom. Within 2018 alone there have been over a hundred Crypto sector related deals announced with the report projecting that this number could hit a hundred and forty-five by the end of the year. In comparison, in 2017 when Bitcoin’s prices hit a record $20,000 there was a total of forty-seven Crypto related deals announced.
Bajpai explained this phenomenon by calling it the land grab approach where more investors are preferring to buy rather than build from scratch. Stating that while building takes a lot of time Bajpal noted that through acquisitions the companies are able to benefit from the existing technologies and products that the acquired companies come with.
In his interview with the CNBC, Bajpai also noted that through this strategy companies are also able to acquire talent seeing as the acquired entity will be coming with its own employees who have experience in the technical fields, which is a plus as such talents are not easy to get.
Challenges Experienced With Acquisitions And Mergers
Bajpai added that through acquisitions users who are an essential part of a firm’s assets are able to be directly on-boarded to the new entity.
Despite all the benefits that come with acquisitions and mergers, there are also challenges that are faced with this strategy. The main challenge with this strategy is usually correct valuation of the firms especially taking into consideration the funding methods used by the firms i.e ICO and figuring out how to adequately compensate new investors.