Crypto

As Bitcoin and other cryptocurrencies fall, digital asset firms curb offerings

The fall in cryptocurrency prices is starting to affect the plans of companies dealing with bitcoin and related areas, amplifying the impact of an already brutal market pullback.

Heading into 2022, doing crypto deals was all the rage as companies looked to take positions in an evolving industry. So far this year, 42 acquisitions of cryptocurrency-related companies have been announced, a pace that would top last year’s 60 deals, according to Dealogic.

But nearly two months have passed since the last deal was announced, a period that coincides with a drop in digital assets and suggests that some companies may find it difficult to reach or complete mergers until markets balance. Among the companies potentially stuck in uneasy limbo: Mike Novogratz’s crypto merchant bank Galaxy Digital Holdings Ltd., which agreed in spring 2021 to buy crypto custody specialist BitGo in a deal that hasn’t closed.

Some promoters have billed bitcoin and related assets as resistant to inflation and generally uncorrelated to other risky markets, such as stocks and some bonds. But the breadth of the 2022 market crash has undermined those claims and added to the fallout from the Federal Reserve’s campaign to reduce inflation by raising short-term interest rates. Bitcoin is down two-thirds from its peak last year, compared with a 22% drop in the S&P 500 and an 86% decline in cryptocurrency exchange Coinbase Global Inc..

WSJ’s Dion Rabouin explains why Wall Street is now betting big on cryptocurrencies and what that means for the new asset class and its future. Photo Composition: Elizabeth Smelov

For now, some investors in crypto-related sectors remain bullish, arguing that the market is inherently volatile and that the companies that offer the most long-term value could survive the current shakeup. Some say they are bracing for what they hope will be a brisk period of value-seeking investment once the crash stops.

“I expect the number of mergers and acquisitions to increase as companies with strong balance sheets look to acquire cryptocurrency firms that have valuable assets or intellectual property and weaker balance sheets,” says Kevin Kang, who helps run BKCoin Capital LP, a fund. New York cryptocurrency hedge. .

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Six previously announced deals are waiting to close, Dealogic says, with some investors wondering if they will all make it to the finish line. In May 2021, for example, Novogratz’s Galaxy Digital agreed to buy crypto custody specialist BitGo for $265 million in cash along with Galaxy shares.

If completed, the deal promises to make Galaxy a major player in the race to attract institutional and individual investors. But Galaxy has already delayed the closure and increased the shares promised to BitGo holders.

The transaction is contingent on Galaxy listing its shares on the Nasdaq stock exchange. But Galaxy is still in talks with the Securities and Exchange Commission about approving its plan to reorganize as a Delaware-based company and then list on Nasdaq, according to people familiar with the matter.

For its part, Galaxy has expressed confidence that the transaction will be completed.

“We’re going to hope for the best and we’re going to continue to engage with the SEC,” Novogratz said on a conference call with shareholders in late March.

Galaxy and BitGo declined to comment.

But some investors say the turmoil in the crypto world may make the deal and others difficult.

“It’s been delayed a couple of times and the terms of the deal say it’s due to close at the end of 2022,” says Eric Jackson, founder of EMJ Capital Ltd., a Toronto hedge fund.

Mr. Jackson is a fan of BitGo and says Galaxy stock is attractive, especially if the takeover goes through. But he points out that Galaxy shares, which have fallen 67% over the past year, are valued at around $2 billion, not much more than BitGo’s $1.2 billion value in the deal.

“You would think that if BitGo is still worth close to $1.2 billion and people assumed the deal would go through, Galaxy would get credit from investors on its market capitalization,” he says.

The deal comes as crypto-related companies like Galaxy try to establish themselves as entrenched players able to make money no matter what happens to crypto prices, just as Wall Street firms make money in all sorts of markets. Galaxy sells crypto investment funds, manages transactions for other large investors, and advises digital asset companies on acquisitions.

“Crypto companies are ‘downsizing’ and cutting their workforce, which will lead to exciting M&A and industry consolidation opportunities,” said Mr. Kang of BKCoin Capital.

Email Gregory Zuckerman at Gregory.Zuckerman@wsj.com

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