When cryptocurrency exchange Binance.US announced it would offer Bitcoin trades with no fees, the results were predictable.
Its biggest competitor, Nasdaq-listed Coinbase, saw its already crumbling shares fall another 10%. Stock and crypto exchange Robinhood lost 1%.
That was the point.
Fee-free trading is “something we want to do because we can,” CEO Brian Shroder said on Wednesday (June 22). “This will create a positive user sentiment that will bring us new users.”
At the expense of our financially weaker competitors, he did not have to add.
With a trading volume of just $280 million over the 24-hour period ended Thursday (June 23), Binance.US is significantly smaller than rivals like Coinbase, which had a 24-hour volume of $1.7 billion and FTX at $2.1 billion.
Coinbase, in particular, charges trading fees of up to 2%.
As the cryptocurrency market plummets to depths not seen since 2020 and a spate of high-profile bankruptcies scares investors, many high-spending crypto industry companies are retreating, cutting costs — Coinbase just laid off 1,100 employees — and generally preparing for what widely believed will be the start of a long, cold crypto winter as the US and the world slide into recession.
Your financially strong competitors, on the other hand, smell blood in the water.
Nexo, a cryptocurrency lending/borrowing platform, announced yesterday that it has engaged Citigroup to advise on acquisitions. That comes less than two weeks after an offer to buy out the outstanding loans from Celsius, a rival lending platform that halted trading after the collapse of a hedge fund that borrowed heavily from it left Celsius on the brink of bankruptcy.
We firmly believe that the acquisition of all or a portion of Celsius’ qualifying outstanding secured credit receivables will go a long way toward providing immediate liquidity @CelsiusNetwork Customers. We are still waiting to hear from their management and will keep you informed.
— Nexo (@Nexo) June 13, 2022
See Also: Collapse of Crypto Lending Platform Celsius Hints at Bigger Problems
In announcing it was hiring Citigroup, Nexo compared the current state of the crypto industry to the 1907 banking panic that saw many defaults.
“The crypto space is about to enter a period of mass consolidation, which has already begun as remaining solvent players like Nexo have indicated their willingness to acquire the assets of solvency-struggling companies,” read a blog post.
It added that the company is “committed to the crypto community, and most importantly, to retail investors who would be hardest hit by this panic.”
On May 31, the CEOs of cross-border payments company Ripple and crypto exchange FTX.US told CNBC that they are looking for attractive acquisition targets, with Ripple’s Brad Garlinghouse reporting “an increase in mergers and acquisitions in the blockchain and crypto space.” predicted, saying that with a “very strong balance sheet” it would be on the lookout for bargains.
FTX.US’ Brett Harrison said the company is aiming for more users and licenses.
Parents with deep pockets
FTX.US’ global parent company, FTX, has since gone above and beyond, providing backstop loans to struggling crypto broker Voyager Digital, which raised $500 million, and lender BlockFi, which raised $250 million, totaling about approximately Offered $750 million.
Read more: Will Crypto’s Richest Billionaire Be ‘Lender of Last Resort’?
While FTX CEO Sam Bankman-Fried — who ranks as the richest of crypto’s remaining billionaires — said he feels “a responsibility to seriously consider intervening, even if it’s a loss to ourselves,” to the ecosystem to protect and “help it to grow and prosper”. ‘, it’s not a totally altruistic impulse.
Last August, FTX bailed out Japanese exchange Liquid Group by $120 million after it was hacked out 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 shares a name with the world’s largest cryptocurrency exchange, it’s nowhere near the size of its namesake. As of Thursday, Binance.US 24-hour trading volume was approximately $280 million. Just plain Binance, which does not operate in the US and is theoretically only indirectly connected to Binance.US – which licenses its name and technology – had a 24-hour trading volume of $11 billion.
But they share a billionaire, 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 announced on June 1 the launch of a $500 million venture fund focused on Web3 and blockchain startups.
Mergers and acquisitions are nothing new in the crypto industry, where VCs have scooped billions. 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 the year 2020, more than a quarter of which will be in the retail sector, PwC said.
But there was a marked shift in tone in the crypto industry as crypto winter struck, briefly pushing 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 March, when industry news source CoinDesk spoke to more than half a dozen crypto industry executives who suggested the flush crypto firms were looking to buy traditional financial firms.
Hany Rashwan, co-founder and CEO of 21Shares, an issuer of exchange-traded crypto products, likens the situation to internet company AOL’s 2001 acquisition/merger of media giant Time Warner – perhaps an unfortunate choice given the disastrous results. Crypto companies are cash-rich fast movers building a fundamentally 10x better product than traditional finance.”
The company “looks at a lot of traditional financial assets that look very cheap right now,” he added. “Old incumbents with poor innovation records are typically unable to monetize, retain and grow innovative, fast-paced startups.”