- The crypto investment trends that are emerging right now show a mix of project types and capital sources
- VC investment into the space has deteriorated and a share of the equity deals are going to startups, which suggests the sector is far from mature
- Despite the high market uncertainty, developments like Facebook Libra will be a good omen for the blockchain industry and help to reduce the increasing confusion surrounding crypto regulation
Lately, there has been a lot of speculation around investing in crypto. For many, the blockchain industry can be increasingly opaque to evaluate and understand. How will value be created and on what time horizon? The internet has been a major driving force in making investing online a trend, breaking down execution and informational barriers for a class of keen traders. An increasing number of funds are increasingly investing in crypto to include them in their diversified portfolios to capture the potential upside of this new asset class.
The blockchain space has gone through very many hype cycles. Crypto watchers and investors should duly consider the trends that will be in play a particular year while looking beyond the immediateness of short term price movements.
A Brief Overview of Crypto Investment Trends
The industry evolved with Bitcoin and Ethereum being the major players. Many alternatives or “altcoins” were built to solve a somewhat similar goal after Bitcoin became dominant. Ethereum introduced a protocol which was picked up by its own inspired alternatives. Any technologist, observer and fund researching or allocating capital into this industry has had to build their theses around this reality. Funds often have a very deep conviction for Ethereum and Bitcoin followed by a series of “hedges” into alternatives that have the potential to grow in relevance.
Hence, the investment themes behind Ethereum and Bitcoin although similar are different when it comes to the problems they seek to solve. While Bitcoin caters to the need for a global form of money that offers a digital alternative to gold and is independent of institutional trust, Etherem seeks to evolve as the basis for a decentralized internet. Although there are nuances within these trends, Forbes remarks, these are the two broad investment trends in the crypto market.
Venture and Equity Investment Trends
Venture investment in crypto has shifted radically over time- while today they are investing primarily in the token economy, initially they backed companies exploring Bitcoin as a currency. They have also catered to a number of verticals including financial services and focused on private blockchain providers. A growing share of equity deals is going to startups because blockchain is still a very nascent category. But 2020 can expect emerging tech areas maturing.
Geographically speaking, the United States is leading the blockchain deals followed by China, UK, Singapore, and South Korea. Corporate participation in investing in crypto is also on a sharp decline.
VC Investor Trends
Many of the names in the mist active investors list are the early stage pro blockchain investors. There are many crypto-only investing firms like Pantera, Digital Currency Group and Polychain, VC firms with specialized blockchain practices and frontier tech accelerators.
Digital currency Group, one of the earliest investors in the blockchain space, has backed more than 4 companies in 2019. Some of its recent bets include rounds to Livepeer, crypto futures exchange CoinFlex and Defi provider Staked.
Boost VC, the Adam Draper led frontier tech accelerator has invested in more than 50 blockchain companies over these past 5 years. Recent deals include the prediction marketplace Guesser, the decentralized DNS service Unstoppable Domains and Crypto on-ramp Amun.
Blockchain capital is the third most active yet one of the oldest blockchain VCs. It might be important to note that many China-based blockchain investors have moved rapidly into space. For instance, when compared with industry stalwarts like Polychain and Pantera, other startups like Fenbushi Capital have invested in more blockchain companies in the past 5 years.
Another interesting mention would be Bitmain, the mining giant which is the largest most well-funded blockchain company behind Coinbase and the second in the world- with approximately $450M of capital raised.
Some Larger Crypto Investment Trends
- Ethereum killers – Andreessen Horowitz made a safe bet on Dfinity to create a high-throughput, scalable “decentralized cloud” for smart contracts.
- Payments layer – Another ongoing theme is funding projects that cater to Bitcoin’s weak adoption as a day to day currency. Companies like Algorand are building a high-speed blockchain-based payment protocol. Chia uses a consensus mechanism that is energy efficient.
- Privacy – The Catalyst Backed 0(1)Labs is trying to enhance privacy on blockchains whereas companies like Starkware are seeking to enhance the scalability of major cryptocurrencies.
- Custody- a new trend is holding cryptocurrencies with institutional level security with services. Anchorage and Redpoint backed Bitgo are two relevant money deals here.
- Securities and derivatives- Andreessen Horowitz backed dYdX is building protocols for margin trading and derivatives devoid of any central authority.
Present Challenges to Investing in Crypto
Crypto trading presently faces numerous challenges that make it highly unappealing to less knowledgeable investors-regulatory setbacks, price volatility and also scaling issues. However, various crypto asset management tools are emerging gradually to assist investors in looking to explore the market.
The process of buying cryptocurrencies is harder than purchasing regular entities. Further, managing and keeping track of the crypto assets is also a daunting task. Easier access would ease out investments that are faltering now, thanks to the fragmentation that defines the trading ecosystem at present. Hence, the overall complexity of the process remains an overarching hindrance.
The crypto industry has seen many exchanges emerge offering some combination of cryptocurrencies many of which may not be compatible with all wallets leading to confusion when managing a diverse set of assets. Additionally, there is a need to address dying coins, exchange hacks and frequent attacks on blockchain networks making it easier for any single entity to take control as recently happened to Ethereum Classic.
In 2019, blockchain has had its share of uncertainty but there is also an undeniably strong undercurrent of cautious optimism. Currencies like Ethereum and Bitcoin have seen a volume surge in recent months while the industry has witnessed a renewed corporate interest with moves from blue-chip names like JP Morgan, Facebook, and Visa. Facebook’s Libra hopes to offer access to a stable currency to the unbanked people around the world.
The good news for startups is that cryptocurrencies, as a flight to safety assets amidst trade war turmoil and political instability are here to stay. Startups can now capitalize on this opportunity and help large institutions and corporations to enter the field. As the challenges are effectively addressed, the burgeoning asset class will continue to grow, opening itself to heightened participation from the entire online investing community.
Global Digital Assets and its experienced professionals work with all blockchain ecosystems and offer agnostic consulting and advice tailored to the demands of their diverse clientele, offering or transaction. They have experience that spans the entire blockchain industry, including capital markets, venture capital, trading, blockchain technology, token development, and issuance. Their goal is to colossally impact the blockchain industry and drive societal change by offering entrepreneurs easily discernible financial and advisory services to encourage seamless investing in crypto.