Investments in cryptocurrency business have already gone far beyond the framework of “investing in tokens and making quick, over-one-thousand-percent returns.” That is why the current “crypto winter” did not “freeze” business activity in the field of creating a cryptocurrency infrastructure; on the contrary, investors are more willing to invest in various areas. What is most in demand?
Cryptocurrency Replacement for Banks Already Exists
Traditional banks are engaged in attracting deposits and issuing loans. All this is already available in decentralized cryptocurrency solutions, and investors actively support the development of such projects. The BlockFi platform launched the opportunity to earn money on deposits in Bitcoin and Ether. The annual interest rate is 6.2%. Deposits in the amount of 10 million in dollar equivalent have already been attracted. But the potential is enormous, as most U.S. banks offer deposit rates in the range of one- to two-tenths of a percent per year, and the amount that is on deposits with U.S. citizens is $13.57 trillion. Considering that from 2012 to the current moment, Bitcoin showed an increase from the minimum values of the year (except for slight subsidence in 2015), deposits in Bitcoin look attractive from all points of view. And it is no coincidence that BlockFi received investment support from Gemini, as well as $52.5 million from Mike Novogratz’s venture capital firm Galaxy Digital Ventures.
But BlockFi follows the controversial setting of the billionaire Winklevoss brothers to focus on working with legal entities. It is obvious that cryptocurrency deposits for individuals are something that will develop literally tomorrow. Issuing loans in fiat on cryptocurrency collateral is becoming increasingly available for individuals. For example, the Swiss company Nexo, which accumulated funds from venture funds, was able to attract over 170,000 borrowers from scratch in the first seven months of providing such services, and the total amount of loans issued per debtor was about $1,765. Such services turned out to be in demand among citizens of 200 countries, and 45 different types of fiat acted as the currency of the loan. And this is not surprising, since no credit history, certificates, or guarantors are needed, and the pledged cryptocurrencies are transferred into special wallets and then insured. Therefore, investors intend to continue to invest in the development of the infrastructure of such a business since the yield from investing in Nexo’s equity capital was 4.8% and higher than what is offered for ordinary shares of corporations such as Apple, J.P. Morgan, and Goldman Sachs.
Traditional Banks Are Digging Their Own Grave?
Classic banks, which should and do fear that cryptocurrency solutions will steal their customers, cannot remain aloof from the world of digital assets in reality. An example is the JPM Coin, the launch of which was announced by J.P. Morgan. The fact that this is not even a cryptocurrency and does not work on a decentralized blockchain does not seem to be a problem. While Jamie Dimon believes that he “hammered an aspen stake into Bitcoin.” in fact, with his investments in the JPM Coin project, he is creating the “ecosystem of services and infrastructure around it, much of which will be able to be used directly or indirectly by permissionless cryptocurrencies,” as stated by analyst Ari Paul. The same applies to investment in the project token for WhatsApp that the Facebook network, the owner of the application, is currently developing. The expert is confident that in the end, all this will serve an excellent service for the dissemination of decentralized cryptocurrencies, which will win in any competitive battle with various centralized digital assets by their properties.
What is going on? Placeholder venture company partner Chris Burniske believes that all skeptics are capitulating de facto because they understand that is possible to love or hate decentralized cryptocurrencies, but it is unrealistic to stop their spread, just as it was impossible to slow down the penetration of the Internet into all areas of society.
The Institutions of the Classical Financial Market Have No Choice
In addition, the high profitability of startups in the cryptocurrency market leaves no choice for classical investors, so they are starting to invest in them. Hence the success of Circle, which was financed even by Goldman Sachs that is wary of cryptocurrencies. As a result, Circle acquired the Poloniex crypto exchange for approximately $400 million at the end of February 2018, and in October, completed the acquisition of SeedInvest. Circle’s activities proved so successful that the company is thinking about raising another $250 million from investors. And it has something to please them with, as according to the report for 2018, Circle conducted more than 200 million transactions worth $75 billion, and 8 million people and organizations from 175 countries became customers of the company. Circle’s main income is the fees from cryptocurrency transactions, and this suits even traditional investors.
Moreover, Circle is promoting its own stablecoin, the USDC. As in the case of JPM Coin, some in the classical world saw in such cryptocurrencies a way to “tame” the decentralized world of cryptocurrencies. But as a result, there is another door that leads right into it. As the partner of Morgan Creek Capital Anthony Pompliano believes, most of the various tokens that are issued will disappear, and “owning equity in infrastructure companies is ideal.”
It is curious that development is sidelined when the fiat is becoming less and less significant, and hence the emerging calm reaction to the fact, “how much Bitcoin is now in dollars.” After all, if Nexo built a fiat loan business, then Genesis Capital demonstrates that borrowing in cryptocurrencies is also a trend. In 2018, the company provided $1.1 billion of such loans with the largest peak occurring in the fourth quarter of last year, when borrowers reached $500 million. And, unlike Nexo, which works with two cryptocurrencies, Genesis Capital has a line of top six crypto coins. As a result, the company doubled its staff and is introducing its services to Asian countries.
Even pension funds are ready to invest in the cryptocurrency infrastructure. For example, Morgan Creek Capital began working with two such organizations from the state of Virginia within the framework of an established $40 million venture fund. It is essential that the funds of future retired state police officers were entrusted to an organization that intends to invest them not even in cryptocurrencies themselves but in startups. This indicates that even highly conservative players are willing to invest in the creation of new banks and new financial infrastructure. This is clearly not done at random since the research direction in the cryptocurrency sector also receives generous funding. Thus, analytical company Chainalysis was able to raise $30 million in February during another round of financing.
Investors Require Cryptocurrency Solutions
Investment funds are going to mining cryptocurrencies as a result, and Bitmain announced in February that it was launching a new BM1397 chip, while Diar analysts noted in March that “there is an increase in the profitability of mining pools that have begun to invest in the purchase of new production machines.”
Technological improvements that concern the emergence of a number of Internet browsers and mobile phones that support digital wallets come because investors vote in dollars for the development of such innovations. After all, for example, the creators of browsers could “calm down” and not include cryptocurrency operations in pre-installed mode. But this is not just a question of the number of program downloads but of the fact that investors are increasingly beginning to direct questions to the management of various companies, such as “what did you use from the world of blockchain and cryptocurrencies, and what improvements have you made in connection with this? ” And this is not just a figure of speech. Suffice it to recall how blockchain has become an integral part of the global oil and gas industry and is also increasingly becoming such for the global agro-industrial complex.
In this regard, investors, no matter how they relate to cryptocurrencies, are becoming more active in promoting blockchain and cryptocurrencies than consumers of services based on these new financial technologies. According to Accenture, $55.3 billion was invested in the fintech sector in 2018. And in 2019, the trend for growth in investor interest in this area continues. As Spencer Bogart, head of the venture fund Blockchain Capital, stated, “entrepreneurial and investment interest is not only not declining, but we see every day an increase in the flow of funds to startups that are working in the cryptocurrency sector.”