Bitcoin remains a fringe currency in the context of M&A transactions. Despite some notable advantages over fiat currency, the risks associated with funding a large transaction using the cryptocurrency have limited its use to deals between players in the Bitcoin space. This article provides an update to our previous article on Bitcoin's viability as a currency for funding M&A transactions.

To date, there have been three notable M&A transactions funded with Bitcoin. Only one of these transactions was completed within the last year, with the other two closing in 2013. The initial excitement over Bitcoin's use in M&A deals was fueled by the acquisition of SatoshiDice, a Bitcoin gambling service, by an unnamed buyer in July 2013, followed by BlockChain.info's acquisition of ZeroBlock, an application that aggregates Bitcoin exchange prices, in December 2013. The use of the cryptocurrency to fund these multi-million dollar deals led to predictions by some commentators that Bitcoin could one day become a widely accepted currency with which to fund major corporate transactions. Time has shown, however, that major corporate transactions funded by Bitcoin remain rare, and, to date, have been limited exclusively to deals between companies servicing the Bitcoin marketplace. The only recent notable transaction funded with Bitcoin was KeepKey's acquisition of fellow Bitcoin wallet maker MultiBit in May 2016. The dearth of Bitcoin transactions between companies that operate outside of the Bitcoin space may be due to a number of reasons, including the inconvenience of acquiring and liquidating Bitcoin, hesitance to adopt new technology, and general lack of confidence in the cryptocurrency.

Indeed, it appears that some of the downsides of Bitcoin that initially made it a risky currency in large transactions remain unaddressed. According to a recent article on the Independent, Bitcoin has long been thought to be the world's most unstable currency. Over the past five years, the price of Bitcoin has ranged between CAD $2 and $1,314 and is currently worth $802. Such volatility, relative to fiat currencies, makes it difficult to determine a fair Bitcoin value for an acquisition. Another risk is the largely unregulated nature of the Bitcoin marketplace. Relatedly, high-profile players in the Bitcoin marketplace have been shaken by data security breaches in which large sums of the cryptocurrency have been lost. Most notably, the once-leading Bitcoin exchange Mt. Gox collapsed into bankruptcy when $460 million of Bitcoin disappeared in 2014. Last month, a hack of the Bitcoin exchange Bitfinex resulted in all users losing 36% of their deposits.

Some emerging issues include the recognition of Bitcoin transfers by governments for tax purposes, as well as the applicability of anti-money laundering laws. With respect to the former, the parties to a transaction may have to exchange a portion of their Bitcoin proceeds for fiat currency to satisfy their income tax obligations, as ZeroBlock did following its acquisition by BlockChain.info. With respect to the latter, Canada's anti-money laundering laws were amended in 2014 to add persons dealing in virtual currencies to the definition of "money services business", thereby making such persons subject to additional reporting requirements.

In addition to its use to fund M&A transactions, Bitcoin assets may plausibly represent an asset class of a target business in future M&A deals. However, the uncertainty in the Bitcoin marketplace and the volatility of the cryptocurrency will pose challenges for acquirers seeking to place a value on such assets.

The features that make Bitcoin an attractive currency for M&A deals are notable. Namely, large sums of Bitcoin can be transferred in a matter of seconds, all while avoiding traditional wire transfer fees and administration costs.

Time will tell whether Bitcoin's relevance in the M&A space will extend beyond its current status as a niche currency.

The author would like to thank Mark Vanderveken, articling student, for his assistance in preparing this legal update.

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