ICOs have constituted only 4% of deals in the sector globally so far this year
- The Blockchain and cryptocurrency movement was developed following the great financial crisis, in response to fears of the consequences of fiat currency debasement caused by the unconventional monetary policy of many central banks.
- Data from CoinMarketCap shows that there are now almost 2,500 cryptocurrencies in the crypto universe with a combined total market capitalisation of $225bn. The ICO (Initial Coin Offering) market gained momentum in 2017, as a way for cryptocurrency developers to raise capital for their projects without going through the same costly compliance processes and regulatory hurdles encountered with traditional fundraising and IPOs.
- ICOs made up just under 30% of deals in the sector in 2017, with $1.7bn raised across these transactions, however, investor appetite for ICOs has waned following the bursting of the cryptocurrency bubble in early 2018, with ICOs making up just 4.2% of transactions in the sector during the first three quarters of 2019.
Investment in Blockchain and Cryptocurrencies has dropped from its peak of nearly $7.5bn in 2018
- The Blockchain and Cryptocurrencies sector of FinTech has emerged, from relative obscurity, with more than $12.8bn raised by companies in the space between 2014 and Q3 2019.
- Investment increased at a CAGR of 123.4% between 2014 and 2018, with investment peaking at almost $7.5bn in 2018. Block.one, a developer of a blockchain platform called eos.ios, raised $4bn in an ICO in May 2018 which is the largest ICO in history.
- Funding dropped to less than $1.7bn during the first nine months of 2019 however, as the Federal Reserve, ECB and other central banks return to quantitative easing in 2020, the sector may witness a reversal of fortune, with flows back into cryptocurrency investments.
The sector has witnessed a significant shift in deal activity from North America to Asia since 2017
- The US was the birthplace of Blockchain technology and Cryptocurrencies in 2009, and North American companies have consequently dominated the share of global transactions in the sector, capturing 38.7% of deal activity globally between 2014 and Q3 2019.
- However, there has been a shift in the centre of gravity of deals away from North America toward Asia, a trend which accelerated in 2018, as the cryptocurrency bubble burst, with almost half of the deals in the sector involving companies based in Asia last year. Tighter regulation and more scrutiny on the sector from the SEC, along with its crackdown on ICOs shifted investor appetite for deals away from the US and towards other regions of the world.
- Over two fifths of the deals valued above $100m since the start of 2018 have involved Blockchain & Cryptocurrency businesses based in Asia. Bitmain, a bitcoin mining solutions provider, raised $422m in a Series B round, led by Crimson Ventures in August 2018, making it the largest deal in Asia last year. Bitmain initially planned to list in Hong Kong but is now planning a US IPO.
The three largest Blockchain & Cryptocurrencies deals this year have involved companies based in Asia
- Almost $1.5bn was raised in the 10 largest deals in the sector in the first nine months of 2019, which is equal to 89.7% of the total capital raised by Blockchain & Cryptocurrencies companies globally during the period.
- The three largest transactions all involved companies based in Asia, with the following four deals involving North American companies and the remaining three companies based in Europe.
- BITFINEX, a cryptocurrency exchange based in Taiwan, raised $1bn in an ICO, in $100m tranches from 10 unnamed investors. This is the largest deal in the sector this year and the largest ICO since the $4bn ICO raised by Block.one last year.
- The largest deal involving a North American company was the $100m Series C funding raised by Kraken, a cryptocurrency exchange based in San Francisco, in February 2019. This deal was done at a $4bn valuation and funding was used to acquire Crypto Facilities, a British trading firm that specializes in derivatives. This acquisition has enabled Kraken to offer both spot and futures trading in cryptocurrencies.
The data for this research was taken from the FinTech Global database. More in-depth data and analytics on investments and companies across all FinTech sectors and regions around the world are available to subscribers of FinTech Global. ©2019 FinTech Global
