Binance just bought the top of the funnel.
The largest cryptocurrency exchange by market volume has acquired the popular data site CoinMarketCap (CMC) for an undisclosed price, the companies announced Thursday. Binance CEO Changpeng “CZ” Zhao told CoinDesk that the deal was closed on March 31, although a verbal agreement was reached “a few months ago”.
With its extensive (albeit often questionable) data on prices, volumes and other metrics for 5,290 cryptocurrencies, CMC has served as a network for retail investors since its launch in 2013.
“It’s a really good website and I think we can help develop it further,” Zhao said in an interview with CoinDesk on Thursday, adding that he had no immediate plans for CMC. Zhao said the domain will remain independent of Binance under a holding company, perhaps dismissing concerns about potential conflicts of interest.
Industry veterans told CoinDesk they see a future where CMC could serve as a marketing channel for Binance, guiding potential customers to exchange. Zhao, on the other hand, characterized it as a simple, albeit large, purchase of a positive cash flow asset.
“It’s by far the biggest we’ve done so far,” he said of the deal.
The acquisition shows that while many companies looked to institutional players as the cryptocurrency messiah in 2019 and even today, Zhao is pinning his hopes on a mass audience of individual investors after buying the busiest website in the space.
Amazon’s Alexa ranks CMC as the 570th most visited website globally in the past 90 days. This is compared to Binance and rival exchange Coinbase at 1,688 and 1,562 respectively. The next closest data provider is CoinGecko at 7,350.
The purchase of Zhao also concludes CMC’s journey, from a completely bumpy short-lived apartment of founder Brandon Chez to a property coveted by an industry leader. In fact, Zhao said he had been chasing Chez for years. With the sale, Chez resigns.
“CMC was not for sale,” interim CEO of CMC Carylyne Chan said in an interview. “The opportunity has come.” (Chan now joins Binance.US CEO Catherine Coley as one of two top female executives running exchange-related businesses in a historically male-dominated industry.)
Earlier this week, The Block reported that the acquisition was underway and set the price at $ 400 million in cash and stock options, citing unnamed sources. The founders and investors interviewed by CoinDesk expressed conflicting opinions on the plausibility of the data; some said it sounded too high, others thought it was too low. Although both Chan and Zhao declined to provide actual data for the acquisition, citing nondisclosure agreements, Zhao confirmed that it was Binance’s largest acquisition to date.
“CoinMarketCap has more users than any other product in the crypto space,” Zhao said. “Even though their money-generating mechanism isn’t as strong as Binance, they have the users – it’s a very valuable platform.”
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The deepest conversations between CoinMarketCap and Binance date back to the investor data provider’s conference in November 2019, Chan said.
Zhao hinted at the upcoming acquisition, along with another unannounced purchase, in a New Year’s blog post. Binance bought nine separate entities last year alone and plans to accept 180 fiat currencies by the end of 2020 in an aggressive push to enroll retail clients. The company’s slogan is “swap the world”.
It’s easy to see, then, why CoinMarketCap’s status as a first landing page for retail investors would be attractive to Zhao despite his past criticisms of CMC for its data quality.
If the price reports are true, the deal stands as one of the best merger and acquisition deals in cryptocurrency history. Circle, now a shell of itself, bought Poloniex for $ 400 million in 2018, but has since abandoned the exchange and focused on stablecoins.
For CMC, the acquisition follows a journey into troubled waters. The company has quickly become both the leading source of data and the go-to platform for asset prices in the nascent industry.
It has also become a lightning rod for litigation after a 2019 report to the United States Securities and Exchange Commission (SEC) from digital asset manager Bitwise found artificial trading volume from 95% of crypto exchanges that provide data to CMC.
Startups like Nomics, Messari, and CoinGecko have seized the Bitwise report to join the CMC group, particularly among institutional investors, who demand robust data and cannot expose their clients to manipulation.
Read more: For $ 15K, it will fake your trading volume – You will get on CoinMarketCap
Rival exchanges reacted with mixed emotions to news of the deal, which could significantly distance Binance from the group.
Lennix Lai, director of financial markets at OKEx, said it was good to see such large M&A deals in the context of a “bear market for cryptocurrencies.”
Big players re-investing in key infrastructure are healthy for cryptocurrencies, Lai said, even if they justify skepticism.
“People may have doubts that CMC can maintain its independence later on. It’s right. But I think we should give the team a chance, “he said.
Andy Cheung, former chief operating officer of OKEx and founder of the crypto derivative platform ACDX, was more critical in his assessment.
The acquisition “is not very good for the industry” given the conflict of interest between the parties’ missions, he said, citing Binance’s trading token BNB as an example.
“I can understand the business or the potential profit,” Cheung said. “But honestly, how are you going to convince people that the rankings and volume are true when you run a trade and possibly even the largest BNB holder?”
Cheung even saw this as a blow to Zhao’s personality cult.
“CZ told everyone: ‘We are not here for the money and to build something bigger and more meaningful for humanity.’ Now I’m disappointed, I hope I’m wrong and has a better reason behind the purchase, he said.
A Silicon Valley cryptocurrency investor speaking on condition of anonymity doubted the reported $ 400 million purchase figure and said the overall deal “looks like a favor” to CMC founder Chez.
“The founder is very stealthy and I think he has the majority of the cap table. And he has been struggling to monetize for years,” the investor said.
This is not to say that Binance doesn’t have loose change. Two sources said Binance is “full” of cash, with one pointing to futures trading clients leaving BitMEX following a critical error on March 12 as a recent perk.
Big data, small markets
CMC is in an awkward position after its acquisition.
While it’s typically the # 1 go-to spot for small retail shoppers, institutional investors declined the website, particularly after Bitwise’s SEC report. At the same time, CMC has some of the best data in the industry due to its huge volume – exchanges have always used CMC, so why change now?
Nomics founder and CEO Clay Collins told CoinDesk that some degree of trust is needed between an exchange and a data provider; he trusts that “it is likely to be eroded here” with CMC under the same roof as Binance.
If rival exchanges feel threatened by the possibility of Binance collecting data from CMC, those companies will be “much less willing to provide low-latency, high-granularity data,” Collins said.
“This data is now being provided to a competitor with surveillance capabilities. Other exchanges are unlikely to want to see Binance aggregate and monetize their data, “he said.
Collins’ concerns were endorsed by Alexei Andryunin, head of Gotbit, a Russian token and exchange promotion service. This is a polite way of describing the business, which Andryunin candidly admitted of inflated volumes on CMC for small cap coins via wash-trading robots.
According to Andryunin, the purchase will provide Binance with “data on all of its competitors, as well as some of the best traffic generation skills in the cryptocurrency industry.”
However, exploiting or modifying the data would be equivalent to sending the investment to a burn address, Andryunin said. “Binance has an incentive to keep this service transparent so you don’t lose your investment. I think they will try to preserve CMC’s reputation. ”
He also said that CMC’s summer 2019 capitalization was estimated at $ 650 million, suggesting the reported $ 400 million offering was the real deal.
Read more: We don’t know the real volume of Bitcoin yet
Binance aside, CMC’s Chan said data concerns continue to be a key part of the company’s focus.
The company is rolling out both “qualitative and quantitative data” capabilities in 2020, Chan said. “Stronger agreements” could be put in place to “protect.” [exchanges’] interest too, “he acknowledged.
“In a way, it’s in our best interest to continue being neutral, transparent and independent,” said Chan.
Zhao acknowledged CMC’s shortcomings, stating that the company “has to solve” numerous problems and “improve the product over time”. That responsibility falls on Chan and his team, though, he said.
“I’m not dictating,” Zhao said.
Meanwhile, the purchase leaves room for elbow for other data aggregators, particularly on the institutional side of the market, said Messari co-founder and CEO Ryan Selkis. In an email to CoinDesk, in its newsletter, and in the Twitter feed, Selkis described the acquisition as a win for everyone, including data companies that won’t get a check.
“This is great news for other crypto data and information businesses. Audience and influence are important. Data quality is important,” he said in a corporate newsletter.
Yan Liberman, director of research and consulting firm Delphi Digital, said these larger acquisitions are positive for the industry and show overall maturation. He added that it’s better to wait and see Binance’s relationship with CMC than to throw stones ahead.
“The initial reaction might be to consider other data providers / platforms as comparable, but due to all the nuances / differences between them, I don’t think it’s very useful to do so until we have a better understanding of what the plans are for CMC.” Liberman said.
It won’t change much for CMC once the acquisition takes place, Chan said. All of the company’s 40 or so employees – minus Chez, who will remain as a consultant – will join Binance’s 930 staff, Zhao said.
Chan said the company will continue to modify his infamous advertising structure, but will still host paid marketing for other exchanges.
Since the company will operate separately from Binance, Zhao will have to spend more money if Binance wants to advertise on CMC, he said.
For his part, Chez – CMC’s sole shareholder – walks away from cryptocurrencies with a large chunk of cash in his pocket – fiat or otherwise. Chan said Chez’s focus remains on his family during the coronavirus crisis and subsequent quarantine he and his family currently live under.
“We’d love to keep him, but he wants to take a break and given the size of the deal, it makes perfect sense,” Zhao said.
Zack Seward, David Pan and Anna Baydakova contributed to the reports.