Crypto is winning and blockchain is losing! That was the dominant narrative in 2019 and early 2020 – the 15 months prior to Covid-19.
Bitcoin had a very good year and rose from about 3.300 dollars to more than 12.000 US dollars while investors continued to fund companies targeting crypto infrastructures. Goldman Sachs named it the best-performing asset in 2019.
Established financial institutions also lost a bit more of their shyness and took a close look at expanding their service offerings focusing on areas such as custody and trading.
In the midst of the Covid-19 pandemic, Bitcoin prices took a hit and lost 50 % of its value, only to recover all 2020 losses by the end of October and climbed above 12.000 US dollars again.
Bitcoin is still perceived as a risk-on asset and not a store of value (yet). Numerous companies are active globally to build and launch products that benefit the maturing blockchain ecosystem.
- Deals are moving from West to East. In 2015, more than half of the deals were for US-based companies. China accounted for only 2%. In 2019, the US’ share of total deals fell to less than one third, while China’s share climbed to 22%. Overall funding dollars fell sharply in 2019 but deals were nearly flat. Total deals for the year were down only 2% YoY in 2019 but funding dollars fell over 30% as deal sizes shrank.
- Enterprise blockchain funding has lagged. How to reduce back-office costs and how to improve business processes are still the biggest concerns. As a consequence, funding to other applications has been about 700 percent higher than to enterprise blockchain companies in the last five years.
- Central banks are getting serious about fiat digital currencies. Most certainly, the future of programmable money will come out of the central banks, and not from a private startup. The central banks of China and England have been active in exploring central bank digital currencies (CBDCs).
- “Crypto-corporate” Venture Capitalists were the most active investors in 2019 with NEO Global Capital and Coinbase Ventures the two most active ones by deal count in 2019.
- Enterprise blockchain funding has lagged. Efforts to reduce back-office costs and improve business processes are still ongoing. However, funding to other applications has been nearly 7x higher than to enterprise blockchain over the past 5 years.
- Lending and stablecoins have driven the growth of decentralized finance (DeFi). There are over $1B in assets on DeFi platforms, up from ~$300M in January 2019. ~60% of assets are on the Maker platform, a stablecoin project collateralized with cryptocurrencies.
- Equity funding to crypto and blockchain companies overtook Initial Coin Offering (ICO) funding in 2019. This was largely due to regulatory scrutiny as the ICO boom in 2018 ($7.8B raised) was mostly largely unregulated. In 2019, total funding to ICOs fell to $371M vs. $2.8B in equity funding to crypto and blockchain companies.