The share of deals under $1m reached a four-year high in the first six months of 2020.
- The Blockchain & Cryptocurrency sector is seeing a new wave of innovation as early stage deals under $1m have increased three-fold since 2018.
- From 2015 to 2018, the proportion of deals valued under $1m fell by 39 percentage points (pp) from 50% in 2015 to 11% in 2018. The drop signaled increased maturity in the sector as simultaneously deals above $50m grew 8.4pp from 2016 to 2018. The maturity was brought about by the rise of initial coin offerings (ICO) in late 2016 and more prominently in 2017 and 2018. Since then, the 22.3 percentage point (pp) increase in deals under $1m exhibits investors’ interest in alternative uses of blockchain technology in other sectors as they take a cautious approach after the crypto crash of 2018.
- As more companies have utilised blockchain, there has been a movement towards renewed innovation in the sector away from crypto and towards alternative uses. Blockchain is being used to solve problems in areas such as elections fraud, refugee aid, and legal documents. Blockchain is also critical to financial services, especially asset trading. By implementing blockchain technology, asset trading becomes both faster and flexible. Specifically, the technology storms pass the intermediaries to quicken the settlement process and give time-sensitive investors the ability to complete settlements easier with extra fees. Blockchain is also used in financial reporting and in cross border payments.
- Bitcoin has recently drawn increased attention again following a massively publicised Twitter hack of some of the social media platform’s high-profile accounts. Joe Bidden, Elon Musk, Apple, Uber, and Barack Obama’s accounts were just some of the profiles caught up in a calculated bitcoin hacking scheme. In total, the hackers walked away with $118,000 in just under an hour. The hack highlights a pro of bitcoin: anonymity. However, the same anonymity makes phishing and cybercrimes that much harder to trace.
Global Blockchain & Cryptocurrency investment takes its first steps into new waters as investors seek stakes in innovative new companies
- Total investment from 2016 to 2018 grew at a CAGR of 279.5%, reaching $7.6bn in 2018. The sector’s hottest year was driven by 15 deals over $50m, making up 82.6% of the annual funding with two of the deals being Initial coin offerings. There were 18 ICOs during the period. Following the burst of ICOs in 2018, investors have looked to other companies in the blockchain sector for opportunities. Investors have slowly trickled out of bitcoin, attempting to reset their dashboard and look how the underlying blockchain technology can be used to solve pressing challenges in financial services.
- Last year saw more than halving of total investment. In H1 2020, only one deal was completed over $50m, leading to a 48% decline in total investment from the same period in 2018. However, the 22.3pp increase in deals under $1m suggests that investors are done with large players and are looking to get in on the startup thrill.
- 2018 saw the burst of the bitcoin bubble, leading to a dramatic decline in total investment. As the prices of many cryptocurrencies collapsed, investors witnessed the volatility of the bitcoin market. Since then, investors are holding back on bitcoin and are starting to place their bets on new innovation.
- In H1 2020, funding was down 65% compared to the same period last year with 9.4% increase in deal activity. The increase in deal activity signals investor willingness to re-enter the sector, putting their faith in new companies using blockchain technology to transform financial services and support already existing FinTech companies.
North American and European companies captured eight of the top ten deals in H1 2020.
- The top ten deals in H1 2020 accounted for 82.2% of total investment for the period, highlighting the concentration of capital in late stage transactions after the resurgence of smaller deals. Eight of the top ten Blockchain & Cryptocurrency deals took place in North America and Europe.
- The largest deal was raised by Bakkt, a US-based crypto derivative provider, which raised $300m in a Series B round led by Microsoft and eight other investors. Bakkt used part of the capital to launch their app this summer.
- Bakkt’s deal in H1 2020 made up 63% of the top ten deals and 51.9% of the total funding for the period. The breakdown further signals investors taking a pause from the bitcoin bubble and slowly beginning to tip their funds into blockchain and alternative uses.
- Celsius Network, the crypto digital wallet, scored two of the top ten deals in H1 2020, announcing $25m between two deals in corporate funding rounds led by Tether. The company announced they would hold course and continue to share profits with their users following a successful ICO in 2018.
North American companies spearheads the renewed innovation in the Blockchain & Cryptocurrency space
- There have been 929 Blockchain & Cryptocurrencies deals completed globally since 2014, with European and North American companies being home to 87.2% of the deals completed.
- Nigeria, a country that has not been active in the Blockchain & Cryptocurrencies landscape, was home to eight deals in H1 2020. The total funding for these deals added up to over $800,000. However, six of the eight deals did not disclose the funding amounts. In April of this year, Nigeria installed their first bitcoin ATM, potentially marking the first steps to a potential continent movement to make the use of cryptocurrencies more widely available.
- Only 2% of investment since 2015 has come from regions outside of North America, Europe, and Asia. North America is home to a majority of blockchain and bitcoin companies as the region has more companies competing to be the most technologically advanced in a field that is still relatively new. The competition fuels companies to take more risks, adapting early tech to potentially become a power player in the sector.
- Europe and Asia hold a fair stake in the sector as Europe’s competitive environment mirrors that of North America. There continues to be high demand of cryptocurrency and blockchain technology in Asia, especially China, as cryptocurrencies like Bitcoin can be used to avoid the extra costs from the currency controls set in the country. The first crypto-law was passed in January of 2020 in China, detailing the need to follow CCP standard for all encrypted behaviours, from block propagation to mining.
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.