Funding In Cryptocurrency and Blockchain Is Moving from the U.S. To China

In 2019, cryptocurrency companies raised US$2.3 billion, while blockchain companies raised US$434 million

Research company CB Insights, which tracks private companies, investments and acquisitions, released The Blockchain Report 2020 in late March, reviewing the blockchain and cryptocurrency landscape in 2019 and providing an outlook for 2020 given the spread of COVID-19.

According to the report, four years ago, 51% of investment deals for crypto and blockchain companies were for U.S.-based firms, while only 2% of investment went to China-based companies. In 2019, U.S. deals fell by 20%, while China’s increased by the same percentage to 22%. This is a clear indication that crypto and blockchain investment deals are rapidly moving towards emerging markets in the east.

The report findings indicate that funding amounts for cryptocurrency and blockchain startups fell over 30% in 2019, but deal volume only decreased 2% year on year (YoY).

  • Compared to 2018, crypto and blockchain investment deals fell across all investor categories in 2019.
  • Deals led by corporate venture capitalists (CVCs), angel investors, and hedge funds shrunk by 5%, 13% and 3%, respectively.
  • Between 2015 and 2019, the share of CVC deals in the market nearly doubled, while angel investors’ share nearly halved as crypto and blockchain companies began to raise larger amounts.
  • 85% of hedge fund investments into crypto and blockchain companies came from non-traditional crypto entrants in the market.

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. Data also shows that three of the five most active VCs (2015-2019) have a unicorn in their portfolios.

Moreover, 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. The ICO boom, which raised $7.8 billion in total, was largely unregulated. 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.

Crypto, not Blockchain, is Winning

Between 2015 and 2019, annual 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.

Furthermore, almost half of the enterprise blockchain funding came from one deal—Ripple, a $10 billion company that uses cryptocurrency to transfer money across borders, announced the close of a $200 million fundraise in December.

Bitcoin was ‘king’ until the coronavirus sell-off

Bitcoin was called the best performing asset in 2019 by Goldman Sachs. The cryptocurrency’s price surged 93% in 2019, but the sell-off in 2020 due to the global pandemic situation erased many of those gains; the price tumbled almost 28%.

Central banks are serious about fiat digital currencies

The future of programmable money could come out of a central bank, not a startup. Central banks across the globe, such as in China, France and England, are exploring central bank digital currencies (CBDC). According to data from the report, 80% of surveyed central banks are actively exploring CBDCs. China has filed over 80 patents related to CBDCs. Although the U.S. has shown openness to some areas of crypto, it is cracking down on others.

“There are many questions that need to be answered around a digital currency for the United States, including cyber issues, privacy issues. Many many operational alternatives present themselves. And so we’re going to be working through all of that and doing that work thoroughly and responsibly,” said Jerome Powell, Chair of the Federal Reserve, when discussing Facebook’s cryptocurrency project Libra.

2020 and beyond

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. Moreover, increasing competition among crypto service providers will drive diversification and addition of high-margin, value-added services to attract consumers.

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