Andrew Tzialli: Crypto is down but not out for many large businesses

Many emerging subsets of blockchain tech like NFTs, DeFi, and Web3 projects are attracting investors interest

Tue, 16 Aug, 2022 - 12:44

Andrew Tzialli

Cryptocurrencies and other digital assets are susceptible to extreme volatility, which new entrants to the market need to be wary of and understand.

Still, for many experienced investors, blockchain-related companies and their technologies now represent a potential investment to tap the next wave of tech advances.

Crypto is either much-maligned and the equally over-hyped technology. It is either the next must-have investment or is just another variant of the 17th century Dutch Tulipmania or, more recently, the dot.com bubble.

With that in mind, the rhetoric surrounding crypto can often be misleading. While there certainly has been a recent collapse in the price of Bitcoin and other leading cryptocurrencies (the fourth such crash I’ve seen since first advising companies in the sector), many well regarded and traditional technology stocks have also suffered the same fate.

Still, the significant drop in the price of Bitcoin may not accurately reflect the wider blockchain sector which continues to see record levels of investment, with many larger corporate brands and mainstream investors looking to get in on the action.

One reason is that the sector is far more diverse and mature than it was a few years ago.

Alternative forms of traditional currencies

Many crypto projects in the early days focused on creating alternative forms of traditional currencies. After all, this is one of the initial primary uses of Bitcoin.

Between 2015 and 2018, the number of so-called initial coin offerings was almost out of control.

It’s fair to say that in recent times, many projects were overvalued. But a brutal bear market has acted in the digital asset sector to wipe out much of the short-term opportunistic money, and the scammers, whose projects are based on flaky, or non-existent, fundamentals.

There has also been a noticeable shift away from this original use of blockchain technology as just a new form of money, into a wide range of areas such as Web3, or the next generation of the internet, metaverse-gaming, non-fungible tokens (NFTs), and DeFi, or decentralised finance.

Many of these emerging subsets of blockchain tech are attracting investors interest.

Just last month, Binance Labs, the investment wing of Binance, one of the world's largest crypto exchanges, launched a $500m (€493m) investment fund focused on Web3 start-ups.

Similarly, venture capital firms Multicoin Capital and Lightspeed Venture Partners have set aside up to $900m for DeFi and Web3 projects.

For those investors at least, there is confidence and belief that the underlying technology is going to have a real impact in the coming years.

Similarly, even though the price of Bitcoin has dropped by 60% since the turn of the year, BlackRock, the world’s largest asset manager, has linked with Coinbase, which will give its institutional clients access to crypto trading and custody services.

Bitcoin will be the first digital asset available for trading; others are expected to follow.

And this month, Tiffany & Co made $12.5m (€12.3m) after it sold off its own NFT, and was paid entirely in Ethereum — the second biggest cryptocurrency after bitcoin in terms of market capitalisation.

Such examples are also not isolated events. An analysis by Blockdata showed that between September 2021 and June 2022, 33 of the top 100 largest public companies in the world had invested in crypto or the wider blockchain projects. Can they all be wrong?

Regulation of crypto assets

Mainstream investors are also aware that incoming regulation of crypto assets should lead to more regulated and stable investment opportunities.

MiCA is the EU's proposed single licensing regime for crypto assets that are not currently covered by existing financial regulation.

The new regulation is set to counter fears of the highly risky and speculative nature of crypto assets, and it is envisaged that a clearer regulatory framework will increase consumer confidence, drive innovation, and ultimately attract new investors.

Despite growing investor appetite for a wide range of blockchain businesses and crypto assets, it’s unlikely the volatility will disappear overnight.

Still, when we see first-hand the breadth of interest in the sector and the huge resources that existing well-regarded blockchain business and new entrants are deploying into building the technology, it’s difficult to see anything other than a thriving future.