Will Exit Market Open Up For Crypto Startups As Market Surges?

The crypto market has remained red hot after the election, as many feel a change in the White House will bring along a friendlier environment for digital currencies.

Could the upsurge also awaken the long-slumbering M&A market for crypto startups, especially as funding has dipped in the sector for a few years and many private companies may be looking for a lifeline?

The M&A dealmaking environment has never really taken hold for VC-backed startups in the sector. The high point for the market was 2022, when only three dozen deals were completed, per Crunchbase data.

So far this year, more than two dozen deals have been consummated, but only one deal with an announced value of any real note: Robinhood’s $200 million purchase in June of global exchange Bitstamp, which has more than 50 active licenses and registrations globally.

Time to make deals

However, crypto’s dynamics may have changed in recent weeks with former President Donald Trump’s election win.

Many in crypto are hailing Trump’s victory as a watershed moment for the industry as the federal government seems ready to embrace digital currencies. Trump’s victory also likely means the ouster of SEC Chairman Gary Gensler, who has taken a strict regulation-by-enforcement approach to crypto.

Bitcoin prices have jumped nearly 40% since the election and hit a new high above $94,000 on Wednesday, while Ether has climbed about 25% past the $3,000 mark.

More importantly for dealmaking purposes, shares of major players in the crypto market have shot up. The biggest winner thus far has been cryptocurrency exchange and cryptocurrency wallet platform Coinbase, whose shares have shot up nearly 60% since the election. Robinhood and crypto miner Mara Holdings also have seen significant gains, with both companies’ shares rising about 40%.

The rise in share prices is important because it means those companies may look more favorably upon using their stock in deals to make acquisitions. No companies like to do stock deals when they feel their shares are low — or discounted — but when they are nearing 52-week highs that attitude changes.

Some of those large companies have been acquisitive in the past. Robinhood has been previously mentioned, but Coinbase has also made two dozen M&A deals in its history, per Crunchbase data.

That includes one deal this year: Coinbase’s acquisition of San Francisco-based Utopia Labs for an undisclosed amount just last week. The startup has developed an operating system for decentralized autonomous organizations to manage payment requests and payroll.

Money may be needed

The jump in share prices for some crypto-related companies may be happening at a needed time for many startups.

Venture funding has declined significantly in the sector the past several years. So far this year, crypto startups have collected just over $3 billion from investors in more than 500 deals, per Crunchbase data.

Montreal-based Blockstream, a blockchain developer of digital asset infrastructure, raised the largest round of the year thus far — a $210 million in convertible note funding.

Those overall venture dollars and deal amounts are greatly down from the sector’s high, set in 2021 — when crypto startups raised an astounding $21.5 billion in more than 1,400 rounds.

That was followed in 2022 by investors pouring in $15.6 billion in venture dollars to crypto startups in more than 1,500 deals.

A lot of startups are now seeking money to survive in an environment where venture dollars have dwindled. For many, an acquisition is the only real way forward. Right now seems like it could be a good M&A moment for those companies — even in a sector where M&A has been scarce.