View from the City: Buy at the right time, not the immediate time

There have been recent Reddit posts which shared that someone invested substantial savings into the new bitcoin exchange-traded funds (ETFs) only to see their portfolio drop 10% in 48 hours. In panic, they closed their position only to see the price rise again, and frantically got back onto the commodity train in time to see it fall.

Without explaining why and thereby consuming any remaining bandwidth on this column (too long; didn’t read: the real margins are to be found on over-the-counter trading desks like one.io or Aquanow, not Coinbase or Robinhood where the majority trade), a similar story has been playing out over the last 12 months across the gaming M&A landscape.

Quite a few dominant brands are getting caught with severe FOMO in certain markets and are hoovering up anything with a GGR pulse.

While it’s good news for sellers and the brokerage industry (yes, of which I am also guilty – the irony is not lost), the truth is that hasty purchases, especially those without some performance targets on earnout, do not usually make for a good relationship, as PENN Entertainment realised.

Unfortunately, (or fortunately), it doesn’t seem that this year will fare much different. Already the going acquisition rates in certain pre-regulated territories are similar to that of white markets. There is a lot of vested interest by the interested with unvested capital, and thus valuations, including pre-regulated markets, will continue to increase this year.

The larger buyers, particularly those with public capital but a better risk management, will continue to strengthen their position by growing through acquisition, wanting first-mover advantage in key grey markets before regulation settles, outpricing medium or even competing brands in the same territories.

In the medium term this will lead to a rapidly consolidating market with a few large players; the smaller ones either eaten up by the larger players or else languishing by the wayside. The current US landscape is a great example of how this will play out.

However, not all is lost. Look beyond the current heated markets and there are a few developing territories full of promise (read: lifetime value) and priced at very reasonable multiples. Add a good risk-adjusted strategy around the terms of acquisition and there will be a good long-term relationship that suits both buyer and seller. Less haste, but more speed.

Which leads us right back to the bitcoin ETF strategy. Just like gold and platinum, the real growth strategy from investing in such funds is to tune down the FOMO, be patient and buy at the right, not immediate time and hold and nurture the investment for the long haul. Now, if only all gaming M&A followed suit…