Crypto consolidation is here

The crypto juggernaut has suddenly hit a wall. A once fast-growing industry finds itself in consolidation mode as the value of crypto, cut by more than two-thirds, slipped below $1 trillion. There’s no way around it: It’s been messy.

Over the past few weeks, crypto companies announced major job cuts. Some DeFi lenders that lured customers in with high yields have now suspended withdrawals as they struggle to stay afloat. Many of those crypto converts are now rushing for the exits as company after company has revealed a surprising degree of exposure to the rising number of troubled players.

Crypto is grappling with a serious liquidity crisis. The contagion triggered by the UST-luna collapse has spread as other crypto companies struggle to stay solvent.

• Companies are denying customers’ access to their crypto accounts: Voyager Digital, Celsius and Vauld are among those that suspended withdrawals. CoinDesk columnist Frances Coppola called it “a race to exchange cryptocurrencies for the few real dollars still available.”
• Some crypto companies have been scrambling for additional financing to cope with the crisis. BlockFi secured a $400 million credit facility from FTX, while Voyager Digital signed a revolving line of credit deal with Alameda Research worth $200 million and 15,000 bitcoin.
• But no amount of cash infusion can save some crypto players. FTX CEO Sam Bankman-Fried, who also runs Alameda, told Forbes that “some third-tier exchanges” are “already secretly insolvent” and are “basically too far gone.” Regulators seemed to agree: Crypto hedge fund Three Arrows Capital was ordered to liquidate. And Voyager voluntarily filed for bankruptcy Tuesday.

The industry is shrinking fast. As the crypto market shed $2 trillion in the last seven months, major crypto players like Coinbase, Crypto.com, BlockFi and Gemini announced layoffs. Others are exploring more drastic measures.

• BlockFi’s financing deal included an agreement that gave FTX an option to buy the crypto lender for up to $240 million.
• The M&A wave is sweeping up smaller crypto players, too. Vauld, which halted withdrawals after customers pulled out about $198 million, agreed to be acquired by Nexo.
• CoinShares is acquiring crypto asset manager Napoleon Asset Management, while Canadian crypto firm WonderFi bought crypto trading service Coinberry.

“It’s a perfect storm that will drive consolidation across the space,” Logan Allin, founder and managing partner of Fin Venture Capital, told Protocol. Bitcoin IRA co-founder Chris Kline said the process will separate “healthy companies” from the “overextended and overleveraged.” The process may be inevitable, but the pain is unenviable.

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On the money

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EToro called off its SPAC merger deal, announcing on Tuesday that it will remain private. The companies did not meet the agreed-upon conditions for the deal, SPAC vehicle FinTech Acquisition Corp. and eToro said in a joint statement.

Indian crypto exchanges’ trading volumes dropped by over 50% following the institution of a transaction tax. After the 1% tax on crypto transactions came into effect on July 1, major crypto exchanges like WazirX, CoinDCX and ZebPay saw trading volumes fall sharply, as many had predicted.

Core Scientific sold most of its bitcoin last month. As crypto miners are being forced to abandon their HODL strategies, crypto mining giant Core Scientific reduced the bitcoin on its balance sheet by 79%.

The Bank of England is calling for stricter crypto regulation. In its latest Financial Stability Report, the U.K.’s central bank said that unless the vulnerabilities exposed by the recent crypto crash are addressed, crypto could pose “systemic risks” to the traditional financial system.

Nasdaq and the NYSE won a battle with the SEC over market data. The U.S. Court of Appeals in D.C. found that the SEC overreached its authority when trying to limit the amount of fees exchanges can charge over market data.

Overheard

After FTX and Sam Bankman-Fried pitched in to rescue BlockFi and Voyager Digital, the crypto broker’s CEO suggested others worth salvaging. That prompted another entrepreneur to come up with a metaphor for his decision-making process. “Tinder, but it’s FTX swiping left or right on distressed assets,” Delphi Digital co-founder Tommy Shaughnessy tweeted.

Gemini co-founder Cameron Winklevoss wants crypto Twitter to “chill TF out,” and to “stop panicking and reading into my Twitter [b]io as if it is something more than it is.” He and his brother had changed their bios from just “#bitcoin” to a promotion for their band, Mars Junction.

Jeremy Allaire, CEO of Circle, would also like crypto Twitter to chill. He reassured USDC users that his company’s fine, unlike some of its stablecoin-issuing counterparts: “It's understandable why some users would be paranoid given the history of hucksters in crypto … Circle is in the strongest position it has ever been in financially.”

Deal flow

NerdWallet is acquiring On The Barrelhead for $70 million in cash and $50 million in stock. The target is an AI-powered consumer debt adviser, and will help NerdWallet leverage consumer information for its financial guidance, according to NerdWallet CEO Tim Chen.

Embedded personal income tax service April raised a $30 million series A round led by the fintech infrastructure-focused fund Treasury. Nyca Partners, Team8 and QED also participated in the round.

Oakland-based crypto infrastructure firm PolySign raised a $53 million series C round for a total valuation of $158.2 million. Participants included Brevan Howard Digital, Cowen Digital and GSR.

Entrepreneur First raised $158 million in a series C round funded by individual investors including Stripe co-founders John and Patrick Collison, Reid Hoffman, Tom Blomfield and Matt Mullenweg. The company backs startup founders who are at the earliest stages of idea generation, and helps match them with suitable co-founders.

San Francisco-based company Pave raised $100 million in series C funding in a round led by Index Ventures. The company, which helps customers benchmark compensation, also acquired the HR software and data provider Advanced-HR.

B2B “buy now, pay later” company Hokodo raised $40 million in a series B round led by Notion Capital. The startup serves European markets. Korelya Capital, Mundi Ventures and Opera Tech Ventures also participated in the round.

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