The largest digital currency exchange of 2021, Coinbase, has just acquired ATS Wallet! This is the latest in a series of acquisitions beyond virtual trading. Sources say the deal was worth about $ million after performance bonuses are paid out.
Since its launch on June 20, 2012, Coinbase has grown to become one of the major players in the cryptocurrency scene.
The company has made itself stand out from other cryptocurrency exchanges by offering additional products and services that can appeal to more individual users – including investors looking for quick growth, casual traders who simply want to buy goods with cryptocurrency, or new users getting into bitcoin for the first time.
The purchase of ATS Wallet fits nicely into this strategy as it adds an easier way for people to hold their money in multiple currencies without having to go to a different service.
Why is this big news for the cryptocurrency industry?
The ATS Wallet app has millions of downloads with 5 million monthly active users, already growing exponentially since its launch. This acquisition makes Coinbase the single largest digital currency wallet provider in the world by a number of users.
By adding this much power into their hands, Coinbase can now raise/lower fees at will without fear of losing too many users because it’ll be hard for them to leave en masse – very easily comparable to how people are stuck with banks after bad things happen due to poor customer service or unethical business practices.
At the same time, Coinbase gains potential access to new markets because it’s easier than ever before for wallets users around the world to buy and sell cryptocurrencies with just a tap of their finger.
The purchase will likely lead to the release of new Coinbase products that will add more convenience for both individual and institutional users – possibly rebranding ATS Wallet as ‘Coinbase Wallet’ is also in the works according to sources close to the company. More details about any major changes coming in 2022 will probably start trickling out towards mid-2021 (similarly to how we got massive news drops throughout 2018).
This deal is huge for both companies, not only because it’s worth $ million but also because it adds an immense amount of power into Coinbase’s hands.
Now they can decide who gets charged what fees when transferring money between wallets, which could be a swift downfall for the industry’s smallest exchanges because it’ll become a lot harder to attract customers if they can’t offer cheaper fees.
On top of that, Coinbase also stands out from other cryptocurrency exchanges by being the only one with the ability to create an online wallet without needing to rely on third parties – giving them a much stronger position in negotiations with potential investors who want tokens listed/purchased.
While this sounds like an exciting announcement, it also results in two major downsides:
1. It gives Coinbase more power when negotiating prices for listing new currencies
2. It makes laws surrounding the regulation of cryptocurrency even stricter going forward – especially if Coinbase starts acting as a bank sooner rather than later.
We could see a limit on how much cryptocurrency (Bitcoin, Ethereum, Dash, Litecoin, Bitcoin Cash, etc.)These new users also make it even harder for smaller exchanges to compete with larger ones like Coinbase and Binance who have vast resources and hundreds of millions of dollars at their disposal – which means we might see even more consolidation among trading platforms over the next several years.
Why Large Companies Acquire Small Companies?
From a financial perspective, there are many reasons for large companies to acquire small companies. The following shortlist summarizes several of them:
✓ The ability to expand into new markets or product areas
✓ Acquire additional sales capacity and customer relationships
✓ Increase market share by absorbing a competitor
✓ Incorporate complementary technology from the acquired company’s research development efforts
✓ Add entire divisions that own proprietary or exclusive technology or intellectual property rights (patents)
Avoid competition – Even though you may find yourself competing with a smaller target investment, the ultimate result usually reduces competition in some way. For example, an acquisition can eliminate competition thus making your business more profitable because it would be the only one operating in a given area. In other cases, an acquisition might remove technological competition.
Acquirers want to preserve the synergies that are expected when they make an investment in a smaller company. These include, but are not limited to:
Labor savings—scalability of labor or operational resources
Research and development (R&D) cost savings—the acquisition may provide access to new R&D programs or technology complementary to your own efforts
Manufacturing cost savings because production processes may be shared between companies in some instances
Marketing cost savings—by combining customer lists, advertising messages, or marketing channels you can reduce costs by spreading them over both companies’ customers for example
Purchasing power—if your volume is too low for suppliers who typically deal with larger customers then the acquisition can allow you to leverage the larger company’s volume
From a legal perspective, there are many reasons for large companies to acquire small companies. The following shortlist summarizes several of them:
Preserve the ability to enforce patents—if your business is at risk due to litigation or bankruptcy then acquisition can preserve that exclusive right for example
Preserve the value of the intellectual property—the law requires that acquired intangible assets be valued and recorded on financial statements just like any other asset so if they are not written down their value will no longer be recognized
Increase shareholder returns—most investors prefer capital gains over dividends so an acquisition might increase income per share, which raises the stock price. An increase in stock price can be accomplished either by increasing earnings or reducing the number of shares outstanding