21shares has dedicated years to establishing its crypto operations away from the influence of Wall Street. Operating from Zurich, the company pioneered exchange-traded products that provided European investors with early access to Bitcoin and Ether, well before similar offerings were permitted in the United States. Now, as the firm agrees to be acquired by FalconX—a crypto prime brokerage backed by Tiger Global and Singapore’s GIC—it is trading some of its independence for increased scale, reflecting the trend of cryptocurrency moving closer to mainstream finance. This acquisition highlights a significant shift: specialist crypto firms are now entering traditional investment markets through regulated financial products. The merger between FalconX and 21shares is part of a larger trend, with crypto mergers and acquisitions reaching over $10 billion for the first time in the third quarter of this year, marking an astonishing 30-fold increase compared to the previous year, as reported by Architect Partners.
### A Changing Landscape for Crypto M&A
Historically, the crypto sector was a stagnant area for mergers and acquisitions as it gradually recovered from the market crash of 2022 under the watchful eye of strict regulations. However, following Donald Trump’s return to the White House, the Securities and Exchange Commission (SEC) shifted from being perceived as an adversary to becoming a supportive ally. This transformation has altered the strategic landscape for companies like 21shares. With a reduction in regulatory challenges, traditional Wall Street players are venturing into the crypto space, compelling existing firms to establish a competitive advantage. “The regulatory environment has finally allowed this to happen at a quicker pace,” remarked Russell Barlow, CEO of 21shares, during an interview, though he did not disclose the financial details of the acquisition. He noted that their strategic plans have been significantly accelerated, allowing them to achieve in two to three years what they originally expected to accomplish in five.
### Competing in a Crowded Field
For much of the last decade, 21shares carved a niche for itself in the European market while U.S. regulators prohibited spot-crypto ETFs. However, in early 2024, the SEC, under President Biden, lifted this restriction, placing Switzerland-based 21shares in a more competitive environment. This rapid evolution comes with challenges; the same regulatory clarity that facilitates new deals also attracts more competition. Major firms like BlackRock and Fidelity have launched low-cost Bitcoin and Ether ETFs, now accumulating more than $173 billion in assets collectively. Specifically, BlackRock’s IBIT Bitcoin ETF and its Ether ETF manage $87 billion and $15 billion respectively, dwarfed by 21shares’ total of $11 billion across over 50 products. As crypto continues to merge with traditional finance, companies like FalconX and 21shares are racing to maintain their competitiveness in this increasingly congested market, according to Nate Geraci of NovaDius Wealth Management.
### A Surge in Crypto ETPs
“We are witnessing a land rush in crypto ETPs,” Geraci stated. “With the new listing standards now in effect, the floodgates are poised to open—creating an opportune moment for deals like this.” Established in 2018 and valued at $8 billion during a funding round in 2022, FalconX recently acquired Arbelos Markets, a trading firm specializing in crypto derivatives. This acquisition broadens FalconX’s capabilities to include product development alongside trading and financing. 21shares will continue to operate independently, retaining its team of 100 employees, and plans to launch 18 U.S. funds this year while also expanding into the Middle East and Asia. FalconX and 21shares aim to create strategies that integrate digital assets into conventional markets, including tokenized bonds and equities, such as utilizing blockchain technology for trade settlement, as described by Barlow.
### A New Era of Consolidation in Crypto
The partnership between FalconX and 21shares is part of a series of billion-dollar transactions that are reshaping the crypto landscape, expanding beyond exchange-traded products and prime brokerage services. This year has seen several notable deals, including Coinbase Global Inc.’s acquisition of the derivatives platform Deribit for $2.9 billion in May, and Ripple’s investment of over $2 billion to purchase prime broker Hidden Road and corporate treasury service GTreasury. Additionally, external bidders are also entering the fray; CoreWeave Inc. made a $9 billion offer for Bitcoin miner and data-center operator Core Scientific Inc. in July. “The consolidation within the crypto space is driving firms to integrate vertically,” noted Karl-Martin Ahrend, co-founder of the digital-asset investment bank Areta. “Market makers, custodians, and infrastructure providers are moving closer to end investors as new ETFs and regulatory clarity create fresh opportunities for institutional capital.”
### Facing Competition from Traditional Finance
Some significant players in the crypto domain are already capitalizing on the renewed positive sentiment by going public to bolster their cash reserves for acquisitions. For instance, Circle Internet Group Inc., the issuer of the second-largest stablecoin, raised $1.1 billion in June, while exchange operator Gemini Space Station Inc. secured $425 million in September. The pressing question now is whether this wave of deal-making will be sufficient to fend off the onslaught of global banks such as Goldman Sachs and Citigroup, as well as payment processors like Stripe and Revolut, who are keen to take advantage of clearer regulations and the increasing appetite for digital asset services. Traditional financial institutions possess the advantages of scale and distribution, whereas crypto companies offer agility and technical expertise. The window of opportunity for crypto firms to leverage these strengths may be limited, making consolidation a crucial strategy for survival and competitiveness in the evolving marketplace.
