29th June 2020

Crypto, coming out of quarantine?

So how’s everyone doing? It’s been an interesting first half of 2020, eh?

We’ve spoken with a number of entrepreneurs working in the crypto and blockchain industry for this blog. While there is clearly a “wait and see” attitude in the air, there is a somewhat guarded optimism underlying a great number of the conversations I’ve had recently.

The temporary crash in all assets in mid-March, also gave crypto quite a punishing hit, dropping Bitcoin and Ethereum by nearly 50% from 6 March to 12 March. The sell-off on the 12th was so severe that it became known as crypto’s black Thursday. Ethereum suffered particularly acutely due to the shift over the past months by stablecoins, including Tether (USDt) to Ethereum, coupled with the advent of decentralised exchanges (DEXs). The success of these products on the Ethereum network led to an extreme increase in the demand for transaction bandwidth in the network, represented by gas prices, which shot from previous levels of 5-20 Gwei (unit of measurement) to 150-200 or greater. The MakerDAO, which allows users to create USD linked stablecoin DAI from ETH collateral, required rebalancing and due to the network congestion resulted in a number of users losing all of their underlying funds as they were unable to recapitalise their positions. Crypto markets quickly resumed, alongside equity markets, and have since regained all the mid March losses.

DeFi (Decentralised Finance) products, rather than being set back, have had a strong few months, ultimately culminating in the release of the lending platform Compound launching its successful COMP token, and holding more than $600 million in value on the platform, overtaking previous leader MakerDAO.

Looking beyond the crypto markets, despite a lockdown, crypto and blockchain companies kept announcing deals. With Coinbase announcing the acquisition of prime brokerage platform Tagomi, in late March, a deal rumoured to be on the cards late last year. Two months later, Genesis trading announced a deal to acquire UK-based Vo1t, a crypto custody provider, with similar aims to create a prime brokerage offering for institutional traders. The deals alone, coupled with wider worry about the global economic outlook provided some level of optimism towards the seemingly endless hope that institutional investors would eventually enter the crypto markets in a meaningful way.

Almost on cue, the CME announced strong increases in volumes of its Bitcoin futures products, including a 32% increase in May. This came in with the announcement that Billionaire investor, Paul Tudor Jones, shared his thesis on Bitcoin and news that he had made significant investments into the cryptocurrency. Late June saw Chicago commodities trading veteran Chris Hehmeyer take his own steps headlong into crypto with the announcement of his crypto focussed market making firm.

This all sounded like good news, so I asked Zeth, co-founder of Plexus, to give me his take, and was surprised by his upbeat views. He told me the following:

“We’ve seen a lot of activity from well funded companies in the space. There are a number of very well capitalised companies out there, some of them raised large rounds last year or early this year, several others are still sitting on ICO funds. We’ve also seen a number of acquihires including Tokenanalyst by blockchain.com, and outright acquisitions like Binance’s $450 million deal for coinmarketcap. Some of these are purely driven by expansion, while others are a play to build more rounded, regulatory friendly businesses with the addition of data services. Another area that is a bright spot seems to be staking businesses that are planning on catering to Ethereum 2.0’s move to proof-of-stake. Previously investors were on the sidelines for other staking platforms, but this is a strong signal by investors with Ethereum looking close to making the transition to staking.”

I asked him about how the lockdown was affecting companies logistically doing business and he said:

“What is interesting about crypto and blockchain businesses is that they tend to be digital first, and often remote first. This means the onboarding process during lockdown hasn’t been affected as much as more traditional companies, and in some cases not at all.”

While much of the industry, and indeed the world, is waiting to see what the fall-out of Covid19 and the lockdown will have, crypto and blockchain seem to be enjoying a relatively bright spot currently. Here’s to hoping that’s a durable trend.

As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.

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