Binance acquires CoinMarketCap – here’s why

Questions as to the commercial motivations behind the purchase are unanswered in Binance’s public announcement – which instead focuses on generic pronouncements from Binance founder Changpeng Zhao about a “common vision to grow and instill transparency in the industry. This will enable us to build on each other’s strengths, jointly serving as infrastructure providers of crypto.” So what’s behind the purchase?

It’s a numbers game

Adopting the Occam’s razor principle that the simplest answer is probably the right one, the buy out will certainly make it easier for Binance to funnel visitors from CoinMarketCap to Binance’s range of trading options. This argument makes sense as research shows CMC has between 2.5 and 5 million unique daily visitors. However, Binance itself is no slouch in the traffic department – averaging between 1 and 1.5 million visits a day to the exchange’s main website Binance.com.

The problem for Binance is that its attempts to expand its reach into western Europe and the English speaking world have met with limited success. Viewed through the lens of traffic numbers, for example, Binance USA’s estimated 20,000 daily visitors is dwarfed by the 1 million plus hitting Coinbase, and Binance’s European targeted Binance Jersey’s 2000 daily visitors are a fraction of Bitstamp’s 100,000 plus. This is despite Binance enabling USD, Euro and GBP onramps for its exchanges.

The value of CoinMarketCap’s traffic from an advertising perspective puts the company’s valuation (if someone had purchased it based on its potential revenue from Google Ads) at around $25 million. So if the rumored sale price of $400 million is accurate it shows that Binance was prepared to pay a massive premium for qualified crypto traffic.

The announcement of the purchase of CMC comes at the end of an expansive first quarter for the Malta headquartered exchange. Since January 1st, Binance has announced the launch of P2P trading in Latin America supporting the Brazilian Real (BRL), Argentine Peso (ARS), Colombian Peso (COP), Mexican Peso (MXN) and Peruvian Sol (PEN).

The exchange ecosystem has also launched a crypto backed Binance credit card in association with Visa, it has plans for a blockchain research institute in China, a 50 million fund with WazirX called “Blockchain for India” to incubate and invest in blockchain projects and startups, a Binance Korea exchange, and the imminent roll-out of new perpetual futures products on Binance Futures. Given the current slump in active retail trading, the purchase certainly makes sense from the perspective of driving traders to Binance’s expanded range of products and exchanges.

Hands off for now

Interestingly, Binance directly addresses widespread concern in the crypto-sphere about the clear conflict of interest generated by an exchange owning the market data company that reports on that exchange’s volumes – stating “CoinMarketCap will continue to be run as an independent business entity. While the Binance cryptocurrency exchange and its native token BNB are listed on CoinMarketCap, CoinMarketCap and Binance are separate entities that maintain a strict policy of independence from one another: Binance has no bearing on CoinMarketCap rankings, while CoinMarketCap has no influence over Binance’s operations.”