Crypto’s Consolidation Wave: M&A to Reach $4 Trillion in 2025

The world of cryptocurrencies, currently worth approximately $3.6 trillion, is preparing for its initial significant merger and acquisition period, with international deals projected to exceed $4 trillion by the year 2025.

Table of Contents

Change is coming

2025 could see record-breaking levels of business transactions worldwide, as dealmaking is anticipated to reach an all-time high of over $4 trillion – the most significant amount in four years.

The forecast is made amid an environment of financial security and expected changes in regulations, fueled by President-elect Donald Trump’s pledges for a business-friendly policy, which includes deregulation, reduced corporate tax rates, and more lenient antitrust laws.

Regarding antitrust enforcement, it’s anticipated that industries such as technology, finance, and retail – known for their high merger and acquisition (M&A) activity in the past – will likely gain from this. Yet, an area that might not always receive attention is the crypto industry, which could potentially be at the heart of these antitrust-related actions as well.

As a crypto investor, I’ve noticed that the crypto market, currently valued at an impressive $3.6 trillion as of January 17, has been relatively less consolidated compared to traditional industries. This is chiefly because of regulatory uncertainties. However, this unique characteristic places us in a prime position to seize the broader economic opportunities that are emerging. Here’s how I see it unfolding.

Regulatory shifts – a catalyst for crypto M&A

In the realm of Mergers and Acquisitions (M&A), regulations can be the key determinant between periods of standstill or advancement. For cryptocurrency firms under the Biden administration, the landscape has been tough, characterized by increased supervision and stringent regulations.

Under the leadership of Gary Gensler, the Securities and Exchange Commission (SEC) has taken a tough stance on enforcement, causing many companies to tread carefully when considering expansion or mergers and acquisitions.

As a researcher, I find myself intrigued by the potential impact of President-elect Trump’s pledge for deregulation and changes in leadership at the Securities and Exchange Commission (SEC). This shift might usher in a significant surge of transactions within the cryptocurrency sector, marking a notable milestone.

To grasp the possible effects of regulatory adjustments, we can look at the patterns that have emerged in conventional markets. For instance, in the year 2024, there was a significant increase in leveraged buyouts, with a 35% jump that reached an impressive $600.8 billion. This surge occurred due to private equity firms taking advantage of enhanced financing opportunities and reduced supervision.

Frequently, these transactions aim at companies that are currently undervalued, offering a blueprint for how such actions might play out in the crypto world. For example, smaller cryptocurrency exchanges or blockchain infrastructure businesses under regulatory stress could now be potential targets for acquisition.

Furthermore, there was a significant surge (an increase of 15%) in the number of Mergers and Acquisitions worldwide, reaching a total value of approximately $3.45 trillion in 2024. Interestingly, the United States, which made up around 45% of this activity with transactions amounting to $1.55 trillion, witnessed a substantial growth in deal sizes. Specifically, there were 37 deals worth more than $10 billion each.

In terms of cryptocurrencies, significant players might be aiming at mergers and takeovers to strengthen their control over the market, expand their product ranges, or break into new geographical areas. However, these actions have far-reaching consequences that go beyond just acquisitions.

Clear regulatory guidelines pave the way for anticipated initial public offerings (IPOs) in the cryptocurrency sector. Last year’s IPO market saw underperformance, raising only $110.6 billion worldwide, but potential changes in Securities and Exchange Commission policies could bring about a change in this trend.

Firms such as Ripple (XRP), Kraken, and Circle, the organization responsible for USDC (USDC), could potentially clear a route towards public offerings after a prolonged pursuit.

Consolidation – crypto’s evolution under new conditions

In simpler terms, consolidation signifies a significant shift as industries move from disjointed rivalry towards a more organized and mature state. By the year 2025, it is possible that the cryptocurrency sector may reach this stage.

Hunter Horsley, the CEO of Bitwise Asset Management, recently pointed out on Twitter that in a deregulated environment, powerful market leaders might grow even larger, potentially causing a reduction in the size of the intermediate players.

The Trump administration might permit large-scale mergers and acquisitions to occur again. This means companies such as Amazon, Google, and others could potentially grow even larger by acquiring smaller companies like Instacart or Uber. If this trend continues, bigger corporations might dominate the market while medium-sized ones may decrease in number. I believe this development could speed up the process of corporate consolidation.
— Hunter Horsley (@HHorsley) January 5, 2025

If prominent companies such as Amazon and Google often acquire businesses like Instacart and Uber with relative ease, this could spark a wider pattern where dominant entities accumulate resources at the expense of medium-sized organizations finding it challenging to stay competitive. In terms of cryptocurrency, there are potentially two significant consequences:

1. The larger players in the crypto market may also seek out acquisitions, further concentrating power among a smaller group of entities.
2. Medium-sized crypto firms could face difficulties keeping up with these consolidated forces, possibly leading to industry fragmentation or even extinction for some companies.

On one side, the allure of decentralization – which is core to cryptocurrencies – might become even more significant. With larger corporations becoming increasingly centralized, people could prefer decentralized financial systems over those they view as excessively managed or controlled.

Instead, one could anticipate a period of consolidation within the sector itself. Larger crypto entities may seek out smaller, region-specific competitors to expand their worldwide influence, improve market liquidity, or obtain advanced technologies.

To grasp this concept, let’s examine similarities found in conventional market structures. For instance, in the early 2000s, a multitude of search engines existed. However, as Google grew more prominent, it became the leading player by absorbing smaller competitors, thereby improving its services and increasing its control over the market.

As a crypto investor, I understand that just like in traditional markets, dominant players such as Binance or Coinbase may use strategic acquisitions to bolster their position, improve services, and venture into underdeveloped areas of the market.

In a manner similar to how fintech companies like Stripe buy smaller businesses such as Bridge for $1.1 billion to improve their infrastructure, it is possible that major crypto stablecoin issuers may choose to make acquisitions in order to strengthen their scalability and compliance capabilities.

Stablecoins play a crucial role in the digital currency market, with a cumulative transaction value surpassing an impressive $233 trillion, as of January 17th. Yet, when we exclude artificial activities like those performed by robots and automated systems, the actual volume amounts to over $17 trillion.

Consequently, prominent issuers of stablecoins such as Tether (USDT) and Circle might consider purchasing smaller competitors to enhance their influence in international transactions or capitalize on emerging markets where the use of these digital currencies is rapidly increasing.

The opportunities for unification in the cryptocurrency sector are immense, and their effects stretch far beyond mere market effectiveness or strategic superiority. As the crypto industry starts to synchronize with wider economic movements, it will continue to prioritize decentralization while doing so.

What do experts think?

To grasp the possible effects of mergers and acquisitions (M&A) in the cryptocurrency sector during the Trump presidency, crypto.news interviewed Lucas Zhang, a venture capitalist who serves as CEO at EPAL.

Loosening regulatory constraints

Initially, Zhang discussed potential adjustments in the strategies of the Federal Trade Commission (FTC) and the Department of Justice (DoJ) when scrutinizing mergers within the cryptocurrency sector.

Under a business-friendly government, it’s possible that the approach towards mergers might become more flexible, especially within progressive sectors such as cryptocurrency.

This flexibility, he pointed out, is probably dependent on whether agreements help achieve wider aims like job generation, maintaining international competitiveness, and the part that blockchain plays in safeguarding financial structures.

(Or)

He highlighted that this leniency could be influenced by whether transactions align with larger objectives such as creating jobs, ensuring global competitiveness, and the impact of blockchain on securing financial systems.

(Or)

He underlined that this tolerance is likely to be determined by whether agreements serve bigger purposes like job creation, maintaining international competitiveness, and the function of blockchain in safeguarding financial systems.

Additionally, Zhang discussed cross-border transactions as a critical aspect that could impact the assessment of strategic worth by regulators when considering crypto-related mergers and acquisitions.

A key characteristic of blockchain technology is its decentralization, which minimizes fraud and simplifies global transactions. This feature lines up perfectly with the current focus on efficient and secure economic practices.

The risk of monopoly

A less strict regulatory climate in the cryptocurrency market could potentially lead to worries about monopolistic practices, especially within sectors that are dominated by a few major players such as exchanges, stablecoins, and custodial services. Zhang warns of the dominance of these giants in key geographic areas as a potential warning sign.

“In the Asia-Pacific (APAC) area, Binance is under examination due to its commanding presence in the cryptocurrency exchange market, sparking worries about its influence over global liquidity and ability to suppress emerging competitors. Meanwhile, within the European Union (EU), the rise of stablecoins such as Tether has ignited debates about potential systemic risks they might pose. If these digital coins continue to dominate the market, it could lead to a lack of financial ecosystem diversity.

Instead, Zhang suggested adopting a harmonious method, drawing inspiration from Japan’s regulatory structure, as a potential blueprint for US regulators, according to his remarks.

Japan serves as an excellent illustration of how regulators can find the right equilibrium. By establishing a well-balanced regulatory structure for cryptocurrency, Japan encourages innovation through transparent, favorable regulations, while simultaneously insisting that these platforms follow stringent anti-money laundering (AML) guidelines and consumer protection measures.

Startups: hope or hostage?

For startups, Zhang stressed that M&A activity is a double-edged sword. He said:

Acquisitions can be beneficial for startups as they offer funding, tools, and access to broader markets that aid in efficient growth. Yet, it’s crucial to consider the potential downside: excessive consolidation could potentially dampen creativity and innovative thinking.

However, he also warned of the risks.

Conversely, powerful companies could buy smaller ones not for their products or services, but rather to eliminate competition. This action could lead to a decrease in the variety within the industry landscape.

In industries dominated by larger entities, it’s evident that platforms focusing on AI and decentralized systems demonstrate how smaller businesses can continue to be innovative and thrive. Yet, it’s crucial for regulators to provide these burgeoning companies with the necessary room to keep innovating and expanding, despite the increasing market influence of bigger players.

Strategic targets

In simpler terms, Zhang pointed out that traditional financial institutions are most likely to acquire companies offering blockchain infrastructure, web3 platform services, and compliance solutions.

These businesses are particularly attractive due to their provision of technology and structures essential for linking conventional finance with the burgeoning blockchain environment. By purchasing such entities, institutions can speed up their digital transition, tap into advanced decentralized technologies, and maintain compliance with the escalating regulatory requirements within the cryptocurrency sector.

Examples of technology designed for compliance, such as those simplifying the onboarding process and enhancing transaction monitoring, are especially useful as financial institutions look to incorporate blockchain technologies into their systems.

Zhang also noted the growing appeal of AI-powered platforms in the crypto space.

Improvements that boost productivity and broaden the range of services are likely to catch attention, particularly as organizations aim to update their workflows.

The road ahead

Under the Trump administration, there’s a strong expectation that regulatory transparency will foster increased investor confidence, especially within burgeoning cryptocurrency areas such as decentralized finance and blockchain infrastructure.

By establishing more precise guidelines, venture capital and private equity companies can act swiftly, directing funds towards technologies that seamlessly connect conventional finance with decentralized platforms. This surge in investment might foster innovation, expand capabilities, and encourage wider acceptance.

On the other hand, if consolidation continues without check, significant risks emerge. As larger companies swallow up smaller competitors, the variety in the market diminishes, potentially leading to a halt in innovation. Excessive centralization could also intensify volatility since the industry might become overly dependent on a few key players for liquidity and essential infrastructure.

Finding a balance is crucial here. Proper supervision should foster investment and teamwork, but not at the expense of the decentralized spirit that sets cryptocurrency apart from traditional systems.

2025-01-17 17:07