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Well-Funded Crypto Survivors Smell Blood in the Water

When cryptocurrency exchange Binance.US announced it was offering zero-fee trades on bitcoin, the results were predictable.

Its biggest competitor, Nasdaq-listed Coinbase, saw its already crumbling shares drop another 10%. The stock and crypto exchange Robinhood lost 1%.

That was the point.

Zero-fee trading is “something that we want to do because we can,” CEO Brian Shroder said on Wednesday (June 22). “This will generate positive user sentiment that will bring us new users.”

At our less-well-funded competitors’ expense, he didn’t have to add.

With a trading volume of just $280 million over the 24-hour period ending on Thursday (June 23), Binance.US is substantially smaller than competitors like Coinbase, which had a 24-hour volume of $1.7 billion, and FTX, with $2.1 billion.

Coinbase, notably, charges as much as 2% in trading fees.

As the cryptocurrency market crashes to depths unseen since 2020 and a spate of high-profile insolvencies spooking investors, many big-spending crypto industry firms are retrenching, cutting costs — Coinbase just laid off 1,100 employees — and generally preparing for what is widely believed to be the onset of a long, cold crypto winter as the U.S. and the world slips into recession.

Their well-funded competitors, on the other hand, smell blood in the water.

Circling Sharks

Nexo, a cryptocurrency lending/borrowing platform, announced yesterday that hired Citigroup to advise it on acquisitions. That comes less than two weeks after it offered to buy out the still-collateralized loans of Celsius, a competing lending platform that halted trading after the collapse of a hedge fund that borrowed heavily from it left Celsius teetering on the edge of insolvency.

We firmly believe that acquiring all or part of Celsius’ qualifying, outstanding collateralized loan receivables will go a long way in providing immediate liquidity to @CelsiusNetwork clients. We are still waiting to hear from their management and will update you.

— Nexo (@Nexo) June 13, 2022

See also: Collapse of Crypto Lending Platform Celsius Points to Bigger Problems

In announcing that it had hired Citigroup, Nexo compared the current state of the crypto industry to the 1907 bank panic, which saw many failures.

“The crypto space is about to enter a phase of mass consolidation, which has already begun with the remaining solvent players, like Nexo, expressing their readiness to acquire the assets of companies with solvency issues,” it said in a blog post.

It added that the company “feels an obligation to the crypto community and, most importantly, to the retail investors that would be hardest hit by this panic.”

On May 31, the CEOs of cross-border payments firm Ripple and crypto exchange FTX.US told CNBC they were on the lookout for juicy acquisition targets, with Ripple’s Brad Garlinghouse predicting “an uptick in M&A in the blockchain and crypto space” and saying that with a “very strong balance sheet,” it would be looking for bargains.

FTX.US’s Brett Harrison said the company was looking to grow users and licenses.

Deep-Pocketed Parents

FTX.US’s global parent company, FTX, has since gone beyond that, offering backstop loans totaling about $750 million to troubled crypto broker Voyager Digital, which got $500 million, and lender BlockFi, which got $250 million.

Read more: Is Crypto’s Richest Billionaire Becoming its ‘Lender of Last Resort?’

While FTX CEO Sam Bankman-Fried — considered the wealthiest of crypto’s remaining billionaires — said he feels “a responsibility to seriously consider stepping in, even if it is at a loss to ourselves,” to protect the ecosystem and “help it grow and thrive,” it’s not an entirely altruistic impulse.

Last August, FTX bailed out Japanese exchange Liquid Group to the tune of $120 million after it was hacked of $100 million. In February, FTX acquired the company outright on undisclosed terms — gaining customers and licenses in Asia.

As for Binance.US, while it share a name with the world’s largest cryptocurrency exchange, it doesn’t have anything like its namesake’s size. On Thursday, Binance.US’s 24-hour trading volume was about $280 million. Just plain Binance, which doesn’t operate in the U.S., and is in theory only indirectly connected to Binance.US — which licenses its name and tech — had a 24-hour trade volume of $11 billion.

But they share a billionaire owner, Changpeng “CZ” Zhao, who reportedly owned 90% of Binance.US when it launched in 2019. In April, it raised $200 million at a $4.5 billion valuation.

Zhao on June 1 announced the launch of a $500 million venture fund focusing on Web3 and blockchain start-ups.

Mergers and acquisitions are nothing new in the crypto industry, where VCs have been shoveling billions around. In 2021, PwC reported that the M&A market grew about 5,000% in 2021, reaching $55 billion, compared to $1.1 billion in 2020. There were 393 deals, compared to 118 in 2020, with more than a quarter in the trading sector, PwC said.

All Bragged Out

But there’s been a distinct change of tone in the crypto industry as crypto winter hit, briefly knocking bitcoin below $20,000 and its market cap — once more than $1 trillion in a $3 trillion crypto market — below $400 billion.

It’s a fair distance from just March, when industry news source CoinDesk spoke to more than a half dozen crypto industry executives who suggested that the flush crypto firms would be looking to buy traditional finance companies.

Comparing the situation to the 2001 acquisition/merger of media giant Time Warner by internet firm AOL — perhaps an unfortunate choice, given the disastrous results — Hany Rashwan, co-founder and CEO of 21Shares, a crypto exchange-traded product issuer said: “Crypto companies are cash-rich fast movers that are building a fundamentally 10-times better product than traditional finance.“

The firm was “looking at a lot of traditional finance assets that look very cheap right now,” he added. “Legacy incumbents with a poor track record on innovation typically have an inability to monetize, retain and grow innovative fast-moving startups.”

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