BK Consortium is to acquire Bithumb, one of Korea’s largest cryptocurrency exchanges. Earlier, Huobi took over Japan’s Bit Trade. Japan’s e-commerce giant Rakuten acquired Everybody’s Bitcoin, Japan’s crypto exchange. America’s fintech company Circle also purchased U.S.-based crypto exchange Poloniex. Recently, there have been a string of mergers and acquisitions involving cryptocurrency exchanges. Objectives of such M&As are diverse: some of them are intended to overcome regulatory barriers and others aim to explore overseas markets.

Move to expand networks

Rumors of Bithumb sales began to spread last year. BTC Korea.Com, the operator of Bithumb, chalked up a net profit of 534.8 billion won last year. The enormous profit once pushed up the value of Bithumb to 2 trillion won. But as cryptocurrency prices have tumbled, market watchers forecast that the company’s net profit for this year will take a nosedive. That’s because the cryptocurrency evaluation profit item, which took the lion’s share of BTC’s net income last year, would be axed drastically. The company’s evaluation profit amounted to 293.1 billion won as of Dec. 31 last year, but BTC is forecast to sustain evaluation losses this year. The violent fluctuation in the company’s assets may have affected the latest Bithumb deal.

A blockchain company official said, “Cryptocurrency prices have plunged across the board and it means that the value of Bithumb’s assets dropped,” speculating that “this would have affected Bithumb’s valuation.” He added that Bithumb’s difficulty in sending money abroad to expand business could justify the deal.

The latest M&A would prompt Bithumb to explore new businesses actively with its own tokens. Private sales of Bithumb coins have reportedly made considerable progress. Experts expect BK Consortium to acquire crypto exchanges from other countries to expand the scope of its business. Bithumb, which has been bound by domestic regulations, appears ready to go abroad in earnest. “BK Consortium would not spend hundreds of billions of won merely to buy Bithumb. The acquisition seems aimed at creating a global network strong enough to compete against gigantic exchanges like Binance,” an investment bank executive for M&As said.

Bithumb has been weighing a plan to deviate from the centralized system in its bid to prepare a decentralized crypto exchange alongside a stable coin scheme. To that end, clear guidelines are necessary, and so Bithumb could install its business base in the like of Hong Kong rather than Korea.

A forward base for entering gigantic Japanese market

Cryptocurrency trading is a global business but regulations vary from country to country. Japan, in particular, is operating a license system for exchanges. One has to obtain a license or acquire an exchange having a license to enter the gigantic Japanese market. The Japanese government has been lukewarm about issuing new licenses since grappling with wild fluctuations of cryptocurrency prices and exchange hacking incidents late last year and early this year.

For this reason, Japanese exchanges have become more expensive. An M&A expert says: “The price of a license exceeds 100 billion won easily.” Nonetheless, M&As are conspicuous in Japan. Huobi Japan, a Japanese subsidiary of Huobi, took over Bit Trade, one of Japan’s 16 licensed exchanges, on Sept. 12. In September, Rakuten could also expand its business stably by acquiring Everybody’s Bitcoin.

Japan’s top financial regulator, the Financial Services Agency (FSA), is poised to be trickier in approving exchanges. The FSA announced that it would screen license applications more strictly when it issued a field survey report on crypto exchanges on Aug. 10. Currently, there are hundreds of applications for exchanges, but new licenses seem out of reach. So the likelihood is that acquiring existing exchanges will be the only way to enter Japan’s crypto exchange market for the time being.

Value of cryptocurrency trading platform

Circle of the United States announced in February that it would take over Poloniex. Circle, which offers a variety of cryptoasset services such as payment settlement, liquidity supply and investment, believes that it will be able to use the cryptocurrency trading platform to strengthen its existing services.

Circle has unveiled a roadmap that would make Poloniex a platform where tokens for diverse assets such as real assets, stocks, real estate, artworks, music and literature are traded in a few years. This is surely a strategy to expand business by grafting technical expertise and experience onto the exchange.

A blockchain industry official said, “Crypto exchanges must go beyond the mere platform for token transactions. We expect them to play multiple roles: a portal for actual services, a vehicle of publicizing services and an operator to manage customers’ assets because they can be a place where tokens with diverse values are traded.”
/Doobo Shim Reporter shim@decenter.kr

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shim@decenter.kr