First Mover Asia: M&A Bankers See Crisis as Opportunity, With Celsius and Inflation in Focus

Good morning. Here’s what’s happening:

Prices: Bitcoin's price clawed back above $20K despite a hot U.S. inflation reading. "Meh," said one analyst.

Insights: Interest in mergers and acquisitions within the crypto sector is gaining traction amid a bear market and falling venture capital interest, Shaurya Malwa reports.

Please , our daily newsletter putting the latest moves in crypto markets in context.

Prices

Bitcoin (BTC) was higher, gaining for the first time in six days and clawing back over $20,000.

The expectation going into Wednesday was that a high U.S. inflation reading for June would push the Federal Reserve to get more aggressive in tightening monetary conditions to slow the consumer-price increases – and that in turn would put negative pressure on prices for risky assets, from stocks to bitcoin.

U.S. stocks ended the session lower, so bitcoin's rise prompted some head-scratching from crypto analysts.

"Normally, this is bad news for the economy and the markets," wrote Alexandre Lores, director of blockchain markets research at Quantum Economics, wrote in a newsletter. "Whether it's just another piece of bad economic data thrown onto the pile, or whether this was already priced in, so far investors are meh about it."

In digital asset markets, Polygon's MATIC token was up 11% after Polygon was selected as one of six companies to join Disney's Accelerator program.

And crypto analysts were gawking at an obscure market metric known as the "stETH discount" – possibly a sign troubled crypto lender Celsius Network might be getting ready to dump some or all of its $435 million stash of staked ether (stETH) tokens. Krisztian Sandor had that story, as well as another exclusive based on blockchain data showing Celsius paying off its final installment of loans to decentralized finance protocols – in this case a $50 million loan to Compound.

(Just before press time, CNBC reported that Celsius's lawyers were notifying state regulators that it had started Chapter 11 bankruptcy proceedings. Celsius didn't immediately respond to an email from CoinDesk requesting comment.)

Today's First Mover Asia was edited by Bradley Keoun and produced by Greg Ahlstrand.

Markets

Insights

Crypto M&A Becoming a Thing as Cash-Flush Giants Pick Up the Little Guys

Interest in mergers and acquisitions within the crypto sector is gaining traction amid a bear market and falling venture capital interest.

Companies flush with cash, such as crypto exchange FTX, are using their resources to capitalize on distressed assets in times of turmoil. The exchange’s U.S. counterpart, FTX US, recently gained an option to buy embattled crypto company BlockFi for up to $240 million, after offering a $400 million line of credit.

Separately, blockchain protocol company Ripple said in May that it was prepared to use its “strong balance sheet” to purchase the companies behind popular crypto protocols and products.

The sentiment follows a record year for mergers and acquisition activity in 2021. According to a PwC report, such deals accounted for transactions totaling more than $55 billion, much more than the $1.1 billion recorded in 2020.

Average deal sizes in the space last year also tripled to $179.7 million in 2021 from $52.7 million in 2020, the PwC report found.

In crisis, opportunity

Some analysts say the increasing interest in purchasing existing crypto players comes from the “size is important” mentality of founders.

“Companies that already dominate segments of their market and who think that size is important will use the opportunities to buy smaller competitors to absorb their customers,” said Martin Hiesboeck, head of research at crypto bank Uphold, in an email with CoinDesk.

“Financial institutions with money at their disposal have always used times of crisis to strengthen their position. This is nothing new, and certainly not a feature special to crypto. Just like in banking, few banks in any country dominate the market,” Hiesboeck added.

That does not, however, mean that smaller operators with innovative or disruptive business models don't have room to grow, Hiesboeck said.

Meanwhile, Hiesboeck said a number of smaller crypto players might be facing turbulence in the current market conditions. “Data leads us to believe that around eight smaller exchanges/wallets are currently struggling, however it's still unclear across the market how this will play out,” he said, without divulging specifics.

“The changing regulatory environment, in particular in the European Union, will force exchanges, and lenders in particular, to disclose more information about their holdings and liabilities, and therefore allow us to have a clear picture of who may be buying and who may be bought,” Hiesboeck said.

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover/" on CoinDesk TV:

Bitcoin, Crypto Markets Turn Red Upon News of US Inflation Hitting 9.1%, Legal Ramifications of NFT-backed Loans

U.S. economy recorded 9.1% inflation in June, a new 40-year high. Will policy makers look for even more aggressive measures to tame inflation, and how would this affect crypto markets? Plus, Jeff Karas, lawyer at Anderson Kill, discusses the complexity and risks of using non-fungible tokens (NFT) as collateral for secure loans. And Aaron Selenica, a college student who lost money trading on the now bankrupt Voyager Digital, shares his story.

Headlines

Former Crypto Adviser Michael Barr Confirmed as Top US Financial Watchdog: The U.S. Senate approved the appointment of Barr, an ex-Ripple adviser who served in Obama’s Treasury Dept., as the Fed’s new vice chair for supervision.

Celsius Pays Off Last DeFi Loan, Reclaims Nearly $200M of Wrapped Bitcoin From Compound: The troubled crypto lender previously paid off loans from Aave and Maker.

Wobble in stETH's Price Shows Fear Celsius Might Dump $435M Stake: The discount on stETH, a derivative of ether, surged as the crypto lender reclaimed and then transferred almost 10% of the total supply of the token.

Polygon Joins Disney’s ‘Accelerator Program’ to Develop AR, NFT and AI Experiences: The Ethereum scaling tool is one of six companies selected by the media and entertainment giant to be a part of its new program.

Longer reads

The Fed Can't Whip Inflation Alone

Today's crypto explainer: What Is Bitcoin Pizza Day?