Another Day, Another Cryptocurrency

by Preqin

  • 03 Jul 2019
  • PE
  • VC

This reflection of the cryptocurrency sector was compiled by Diego Lanao and Martin Naydenov.

In today’s world, cryptocurrency remains a mystery to many, leaving those who understand the market to ponder whether society will accept this method of exchange as the norm. Claiming to be a more secure form of transaction, cryptocurrencies operate as a solution to issues that arise from banking systems and centralized digital currency usage, which include transaction fees, data sensitivity and the timely completion of international payments.

Digital currency continues to gain momentum. Preqin Pro reveals that 448 venture capital deals were completed globally in 2018 in the blockchain and cryptocurrency fields. This marked a 157% increase in the number of venture capital deals globally from 2017, demonstrating that more companies are interested in entering the crypto world.

Notable cryptocurrencies include Litecoin, Dogecoin and, of course, Bitcoin. However, the cryptocurrency that has been making headlines recently is Facebook’s Libra, as the social media platform recently released new details regarding its digital system.

Transitioning to a Digital Financial World
Facebook’s new electronic dollar aims to operate as a stablecoin, in which financial transactions will have almost zero attached fees, the currency will be pegged to tangible assets and individuals will hold the ability to liquidate their assets. A specific Facebook subsidiary, Calibra, will operate as a digital wallet for WhatsApp and Messenger users to utilize Libra for efficient online transactions. Though this may not seem unique, one of the major differences that distinguishes Libra from other cryptocurrencies is its own central bank, Libra Association, which is composed of investments from a consortium that includes Visa, Uber, Mastercard, PayPal and Stripe. Additionally, Calibra aims to support individuals in underdeveloped countries and those without an active bank account. The support from these established financial investors, along with Facebook’s mission to develop its social responsibility with its new digital asset, could attract the interest of companies that are directly involved with blockchain and cryptocurrency.

Investments in Crypto-Related Companies
Since 2014, both the number of completed venture capital deals and the aggregate value of deals within the blockchain and cryptocurrency sectors have increased. Based on venture capital transactions, the US retains its dominating position in the market acquired in 2014. In 2018, the US accounted for 27% of all global venture capital cryptocurrency deals and 60% of their aggregate value.

The largest cryptocurrency financing round in 2018 was the $363mn Series D/Round 4 investment in Robinhood Markets, Inc. Additionally, digital currency wallet company Coinbase Global, Inc. has seen yearly investment rounds since January 2015, which have continued to increase in size. Both Robinhood and Coinbase share similar socially responsible views with Facebook’s Calibra, with Robinhood operating as an alternative to various financial transaction fees for users and Coinbase aiming to lower the global poverty rate.

Future Aspirations for an Online Market
Currently, the cryptocurrency market is reminiscent of the Wild West, with little to no regulation, despite continual calls for legislation. For the crypto sector to last, it will need to gain credibility. There is a strong possibility that crypto-related companies will be listed on NASDAQ, implying a greater amount of government regulations in an attempt to prevent illegal activities, such as money-laundering and black-market transactions. Facebook’s attempt to integrate cryptocurrency with daily necessities could bring greater attention to companies that are already involved in the crypto market, and pile on the pressure for written and enforced regulations.

With government support, as well as rising investor and consumer demand, crypto has the potential to disrupt the banking sector. Who knows what is next in the crypto verse – Twittercoin? The sector is open to innovation and invites competition, and with an increasing number of investors backing these companies, the possibilities are ever growing.

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