To print this article, all you need is to be registered or login on Mondaq.com.
A new report from CB Insights highlights blockchain landscape,
the impact of COVID-19, and what’s in store for the remainder
of 2020
How are venture capital and other asset classes deploying funds
to blockchain based business models? What are the latest theses
from investors as to why to invest in blockchain? How have
blockchain based businesses been effected by the global pandemic
and economic crisis that ensued? How are they positioned to
recover? The
Blockchain Report 2020, released by research company CB
Insights, reviews the blockchain and cryptocurrency landscape in
2019, while providing a window into 2020 with the impact of
COVID-19. Meanwhile, regulatory and enforcement bodies are standing
firm in their mission to protect investors based on the existing
statutory and regulatory frameworks, that were not written in
contemplation of distributed ledger technologies.
Bitcoin was on top until COVID-19
Last year, Bitcoin’s price nearly doubled despite dampened
media coverage, and Goldman Sachs named it the best-performing
asset in 2019. However, since the onset of the coronavirus, BTC is
down about 30 percent YTD.
According to the report, in 2019, “Crypto not
blockchain” was the primary narrative as Bitcoin was over 90
percent, while investors continued to fund companies building
crypto infrastructure. Meanwhile, incumbent financial institutions
looked to expand service offerings in areas like custody and
trading. And in 2020, amid the Covid-19-driven market sell-off and
recovery, Bitcoin still acts as a risk-on asset, however companies
continue to launch products that benefit the ever-growing
blockchain ecosystem.
Deals are moving East
In 2015, 51 percent of deals were for United States-based
companies while only two percent went to China-based companies.
Then, in 2019, the U.S. share of deals dropped to 31 percent and
China’s increased to 22 percent – showing that crypto and
blockchain investments are moving towards emerging markets in the
east.
During the coronavirus pandemic, there have been concerns about
how it would affect the growth of technology in China.
The country has actually used blockchain technology to keep track
of the supply of virus prevention materials, manage medical data,
and in getting public opinion. In fact, last month,
Blockchain.News
reported about 20 blockchain-based applications have been
designed to address problems relating to the spread of coronavirus
in the first two weeks of February. Most of these apps have been
created to manage personal data of those in the region as they
return to work.
Enterprise blockchain funding has slowed
Efforts to reduce back-office costs and improve business
processes are continuing. However, over the last five years,
funding to other applications has been almost seven times higher
than to enterprise blockchain.
According to the report, Fenbushi Capital and Blockchain Capital
topped the charts as the most active VCs between 2015 and 2019,
while Neo Global Capital and Coinbase Ventures were the most active
VCs in 2019. Meanwhile, equity funding to crypto and blockchain
companies overtook Initial Coin Offering (ICO) funding in 2019 as
the ICO boom of 2018 collapsed under regulatory scrutiny. In 2019,
total funding through ICOs fell to $371 million. In comparison,
crypto and blockchain companies raised $2.8 billion in equity
funding in 2019.
Between 2015 and 2019, VC-backed deals and financing into
enterprise blockchain–defined as software for enterprise
processes excluding holding or trading cryptocurrencies–has
been dwarfed by funding to cryptocurrency companies. In 2019,
cryptocurrency companies received $2.3 billion in VC-backed funding
while enterprise blockchain received $434 million. In fact,
almost half of the enterprise blockchain funding came from one deal
– Ripple. This $10 billion company that uses cryptocurrency
to transfer money across borders announced the close of a $200
million fundraise late last year. In addition, Bitcoin was
called the best performing asset in 2019 by Goldman Sachs. The
cryptocurrency’s price surged 93 percent in 2019, but the
sell-off in 2020 erased many of those gains, dropping to 28
percent.
Central banks get serious about fiat digital currencies
It turns out that the future of programmable money could come
out of a central bank, not a startup. According to the report, 80
percent of surveyed central banks across the globe are exploring
central bank digital currencies (CBDCs). In fact, China has filed
more than 80 patents related to CBDCs. And, even though the U.S.
has shown openness to some areas of crypto, it is still cracking
down on others.
Looking into the near future, government involvement in
cryptocurrencies is set to grow. With the launch of CBDCs,
governments may implement regulations to discourage the use of
non-fiat cryptocurrencies. So, increasing competition among crypto
service providers will drive diversification and the addition of
high-margin, value-added services to attract consumers.
Legal and regulatory oversight on the horizon
In an interview with Bloomberg, Chairman of the Securities and
Exchange Commission Jay Clayton reportedly said: “I think
a lot of people got excited that somehow we would change the rules
to accommodate the technology and they invested their time and
effort thinking that would happen […] I have been pretty clear
from the start, that ain’t happening.”
As we look forward into the second half of 2020 and beyond,
irrespective of the administration in Washington, we should expect
to see regulatory and enforcement actions that protect investors
based on the existing statutory and regulatory scheme in place for
decades. The settlement between the SEC and Telegram was a case in
point. Businesses that build new technologies to comply with
existing statutory and regulatory schemes will win the race to
hegemony, and those that push ahead where there is no legal safe
harbor will be met with failure.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
POPULAR ARTICLES ON: Technology from United States