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State of the Crypto Financing and M&A Markets
Premature Optimism
On July 3rd, we conveyed an optimistic perspective on the crypto financing and M&A markets in our Q2 2024 report. This view was anchored in improving sentiment in our day-to-day conversations with clients, investors and acquirers and positive trends in announced transaction activity. Our Q2 headlines were:
Major Positive Inflection Point Happening Now
Confidence and Momentum are Back
Crypto has Surpassed the Internet for the First Time
Green Lights are Flashing for Crypto M&A
Private Financings are Recovering
We’re believers in pragmatic optimism, however, we miscalibrated our optimism. Q3 2024 data has proven us premature in our declarations. But many important foundational developments and trends still do point to improvements looking forward.
Q3 2024 Reality
Trading Markets Generally Lackluster
Psychologically and economically, our sector remains dominated by asset values and trading volume. Simply put, asset prices and trading volume remain below levels earlier this year, negatively impacting both sentiment and revenue for most of the industry. For example, Bitcoin and Ethereum have been trading below $60,000 and $2,500 for much of the past quarter and overall spot trading volume dropped 15% in Q3 and even more notable is the 31% drop below Q1 2024 levels.
The Winter Deeply Scarred
Almost universally, investors and acquirers remain cautious and selective. While seed and early stage venture capital markets remain active, growth stage is muted due to an overhang of high valuations on previous rounds and relatively few active growth stage investors. Except the Bitcoin mining segment, acquirers are cautious, highly valuation sensitive, and many are awaiting better regulatory certainty.
Regulatory Uncertainty
While great strides are occurring globally, in the U.S. regulatory uncertainty continues to cast a pall over our industry. Many believe that a bifurcated market that excludes U.S. investors and companies is untenable for a global asset class and set of use cases. In other words, regardless of how much many would like think otherwise, the United States matters.
Reasons for Optimism: The Foundation Continues to Be Laid
Many positive developments are occurring weekly which drive our optimism. A few for thought are:
Regulatory Progress
MiCA implementation offering regulatory certainty in the EU
Getting beyond U.S. elections offers promise for constructive legislation in 2025
Major legal and regulatory initiatives, led by Coinbase, forcing progress.
Demonstrated Product Market Fit
Commercial success of Bitcoin ETFs and SEC approval of ETH ETF
Stablecoin-based payments are scaling quickly driven by many industry leaders.
Shifting Role of Traditional Financial Institutions
Shifting from “fight” to “embrace and extend”, disappointing some but likely positive for constructive legislation and onboarding new participants.
Each Subsector Has Unique Strategic and Tactical Dynamics
Our industry is comprised of a wide variety of business types and “reasons for being”. Global statements about the industry, like above, are the macro environment. Arguably more important are the merits and dynamics around any one particular market opportunity, use case, company and or project. That’s why much of what follows is subsector focused. When we are asked, “how’s the market?” we follow up with a series of questions to identify the specific market being referenced. In other words, the details and nuance matter.
Eric F. Risley
Founder & Managing Partner
October 1, 2024