On March 3rd, 2023 Coinbase announced the acquisition of the digital asset management firm, One River for an undisclosed amount.
Target: One River Digital Asset Management
One River Digital Asset Management (ORDAM) is an SEC-registered, cryptocurrency investment management and advisory firm. The company offers institutional investors access to digital assets like Bitcoin, Ethereum, other cryptocurrencies, and blockchain-related companies. It’s based in Greenwich, Connecticut with additional offices in New York and Singapore. One River is split into two primary investment vehicles: the One River Digital Asset Fund and the One River Digital Bitcoin Fund. These offer institutional clients investment solutions, and advisory services, and implement their proprietary trading algorithms to create value for their clients.
One River’s closest competitors are other digital asset management firms such as Grayscale, WisdomTree, Bitwise Asset Management, Coinbase Asset Management, Fidelity Digital Assets, and ARK Invest.
The company was founded in 2019 by Eric Peters and Sebastian Bea. Both founders have extensive experience in the finance and technology fields. Peters and Bea lead the firm’s ~50 employees. One River has also ventured into the carbon-neutral Bitcoin space by launching a firm that focuses on mitigating the environmental impacts of Bitcoin mining. One River has raised $56M in capital over two rounds, with the latest round from September 2021 at a $186M post-money valuation. Former investors include Goldman Sachs (lead), Infinity Capital Partners, Liberty Mutual Insurance, and Coinbase Ventures.
Buyer: Coinbase (NASDAQ: COIN)
Coinbase is one of the largest players in the cryptocurrency exchange and digital asset space. The company is well-known with 110 million users in over 100 countries. Coinbase also provides a variety of institutional-grade services for finance professionals in the digital asset industry including an institutional trading platform, custody solutions, and prime brokerage services. Coinbase is one of the first cryptocurrency exchanges to go public, and the company is listed on the NASDAQ, with a current equity value of $14.5B and an EV / LTM revenue multiple of 4.1x.
Coinbase was founded in 2012 by Brian Armstrong and Fred Ehrsam. Armstrong is the current CEO, leading the firm’s ~3,000 employees. The company is headquartered in San Francisco, California, and has offices in New York, Chicago, Tokyo, and London.
Coinbase has been a leading acquirer in the crypto space, previously acquiring FairX (2022), BtcTurk (2022), Unbound Security (2021), BRD (2021), Bison Trails (2021), and Tagomi (2020).
ORDAM, a subsidiary of One River Asset Management, was acquired by Coinbase for an undisclosed amount. ORDAM will transition to become Coinbase Asset Management (CBAM).
Comparable digital asset management transactions include Huobi | About Capital Management, Blockchain.com | Altonomy ($250M), Gemini | Omniex, Deutsche Borse | Crypto Finance ($108M).
Often, buyers and sellers have an existing relationship, which holds true in this case. Coinbase invested in One River’s Series A and had been a close partner for several years leading up to this acquisition, demonstrating the “Acquire your Acquirer” approach to driving premium value M&A. Coinbase followed this road and found a natural way to expand their product scope and firm strategy while still focused on the crypto industry.
Specifically, this transaction fulfills two strategic rationales:
- Continued investment in the institutional business line. Expanding their institutional offering through ODAM’s Separately Managed Account (SMA), Coinbase can continue to offer additional services to their growing segment. Coinbase has increasingly become institutionally focused, with 80% of trading volumes in 2022 being institutional and roughly 25% of the 100 largest hedge funds in the world by assets under management are Coinbase customers.
- Recurring revenue. Pricing for SMAs is asset-based, so the revenue is a (relatively) consistent flow and can help diversify from the volatile trading revenue.
Architect Partners’ Observations
Crypto-focused asset management is a very narrow tightrope to traverse. With the SEC’s continued rejection of Bitcoin-based Exchange Traded Funds (ETFs) and recent messaging of the “qualified custody” requirement of crypto for wealth managers, regulatory uncertainty is a damper on the sector. Institutionally focused products, such as ORDAM’s, are an area that has more leeway. While there are other firms with a similar focus, many have plateaued in growth. While there are other asset manager players, will this prompt others to find a new home in a larger firm?
This transaction also signals a future vision of what exchanges may become – all-encompassing financial services firms (much like many, many other TradFi firms). Coinbase’s sole dedication to the crypto sector is becoming a differentiator in itself.