blockchain

Breakdown of Investment in the Crypto Economy

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Autonomous NEXT analyzed the investment in the crypto economy from 2013 till June 2018. Our findings show the first wave of investment from traditional venture firms in Bitcoin associated companies was between 2013 and 2016, with $400-700 million annually. The second wave of investment from corporates into enterprise blockchain was between 2015 and 2017, with $250-400 million annually. The third wave of public crowdfunding flowed into ICOs, with an unprecedented rise in prices for crypto currencies, with $7 billion of investment going into the space, 4x greater than equity investment in crypto companies. Many ICOs formed to take advantage of the “gold rush” and created questions of quality and regulation for tokens

But nearly half of the $12B in funding raised in 2018 is EOS ($4.2B) and Telegram ($1.7B) hiding emerging weakness in the system.

Emerging set of approaches to crypto valuation

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Autonomous NEXT has broken down the emerging set of philosophical approaches to crypto valuation which has resulted in various feedback loops.

Our findings show that the lack of concrete definitions behind tokens and coins coupled with the retro-fitting of existing economic frameworks and math from adjacent industries results in finding a commonly used valuation framework close to impossible. The need for a valuation framework is driven by (1) institutional investors used to DCF and comps entering a market that is more appropriate for early stage venture, and (2) the immaturity of decentralized project models, which have no stable equilibrium around long-term instrument pricing and market outcomes. Market manipulation and persistent speculation has skewed activity statistics related to digital assets and hence made real vs. created activity difficult to distinguish. The transition from corporations to networks and from profits to mutualized resources is also a meaningful unknown.

Directions of global regulatory approaches to Crypto

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Autonomous NEXT has analyzed how, from a strategy perspective, global regulatory approaches follow three directions according to their role in the global economy. Our findings show that the adoption of regulatory approaches towards crypto is different across different countries.

Crypto Delaware represents economies that are less concerned with consumer protection and are more attractive regulatory environments for innovation and start-up activities. Sovereign technology sword economies use sovereign power and investment to control and direct technology and economic competition. Consumer protection shield economies favour innovation to be bound by the existing regulations and laws in order to maintain the status quo of economic activity.

The four waves of innovation within crypto themes

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Autonomous NEXT has identified the four key waves of innovation within crypto themes starting with: (1) Bitcoin, (2) Enterprise Blockchain, (3) Decentralised Apps, and (4) Smart Securities.

Firstly, Bitcoin in 2008 exemplified the first decentralised and secure digital store of value from 2008, potentially disrupting $7-100 trillion in the global macro trade. Enterprise Blockchain in 2014 allowed for private consortia within industries to take advantage of the efficiencies of the blockchain whilst retaining necessary elements of privacy, impacting $500 billion of costs in financial services alone. Decentralized Applications commercialised blockchains further by allowing for entrepreneurs to build digital products and services (ICOs) harnessing the security and efficiencies of the blockchain. Finally, Smart Securities launched in 2018 enabling for further institutionalization and tokenization of the crypto space, spreading the overall impact to all asset classes valued at $500 trillion.

2014-2017 ICO Category Breakdown and Funding

ICO Funding 1H 2017

ICO Funding 1H 2017

Autonomous Research have analysed investments in Initial Coin Offerings (ICOs) since their inception. The left-hand side graph depicts funding by category for ICOs from 2014 to 2017. Initial funding in 2014 began at US$26 million, breaking down to $19 million being spent on core tech and $7.5 million going towards cloud innovations. 2015 saw a dip in funding, dropping to a total of $14 million but it was spread out across a wider range of applications, with $5 million being dedicated to financial markets and $2 million being invested in cryptocurrencies. There onwards the ICO market has grown immensely, largely due to The DAO raising $150 million in investments, causing total ICO funding to rise to $222 million in 2016. The first half of 2017 has shown the greatest amount of funding, rising to over $1.2 billion, with over $500 million going towards cryptocurrencies and financial market services in second raising nearly $200 million.

The right-hand side depicts the firms with the most funds raised in the 2017 period so far. Topping the list is Tezos with $208 million followed shortly by EOS at $200 million, both of whom deliver core tech services. BANCOR received the third highest amount of investments at $150 million, dominating the financial market services, with only two other financial market firms with large investments: (1) Gnosis, raising $12 million, and (2) OpenANX, raising $19 million.  Media and social services grew hugely in 2017, with Status raising $95 million, Basic Attention Tokens raising $35 million and the DAO.Casino raising $12 million. Other notable service funding include cloud and payments, with TenX topping payment services at $80 million and SONM leading the way for cloud at $42 million.

* Updated numbers through December 10th, 2017 are below:

ICO Funding, December 2017

ICO Funding, December 2017

** A note on methodology. We primarily look at ICOs that have raised or are raising over $1mm USD, which filters for more reputable projects but may miss the longer tail of seed-stage token investing. To collect the data, we leverage and cross-check multiple primary and secondary data sources, and then categorize projects based on use-case into industries. The starting and ending dates of ICOs are also a moving target, therefore we use the earliest of the dates where possible. Our goal with this data is highlight the direction of travel, which appears to be from the protocol level to the application level.

2030 Projection of Blockchain Technology Market

Our findings project that Blockchain technology companies could experience a revenue pool of $6 billion by 2020 and $20 billion by 2030. These figures are based on the impact of digital ledger technology on payments: (1) Business Cross Border, (2) Remittance, as well as impact on (3) Capital Markets and (4) Title Insurance. Findings show that Cross Border B2B will make up most of the Blockchain revenue pool at $3.5 billion (56%) in 2020 and $12.2 billion (60%) in 2030. We also expect the increasing adoption of digital currency to put downward pressure on remittance payments shifting 20% of revenue to Blockchain companies. We project this to account for $1.5 billion (24%) of Blockchain revenue in 2020 and $3.8 billion (19%) in 2030. Remaining revenue is captured by the reduction of infrastructure and counterparty risk for capital markets, as well as savings in Title Insurance commissions and maintenance cost. In the period 2020-2030, Autonomous Research estimates a CAGR of 12.6% for the Blockchain technology market.

Analysis of Blockchain Venture Activity and Bitcoin Relation

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Autonomous Research has analysed the Venture Activity relating to Blockchain and Bitcoin in the period 2011-2016. Our findings show a strong growth in venture funding and deals made, starting in 2013 with $75 million (75 deals). Peak investment in this period occurred in 2016 at $525 million (142 deals) with deals made declining from 195 in 2015. This suggests higher funding per deal and new start-ups are increasingly supported by venture activity, primarily in North America.

Our second chart shows a decline in the share of funding targeted at Bitcoin entrepreneurs with 42% of venture funding not focused on the currency. This is a sharp decrease from 3% in 2014 and implies a shift in interest away from Bitcoin and towards other cryptocurrency and digital ledger technology.

Impact of Roboadvisors and Blockchain on Revenue Pools by Industry

Autonomous Research estimates that the Blockchain and Roboadvice technologies will impact over $900 billion in revenue, reducing it by approximately $250 billion. The revenue pool from 2016 is derived from revenues in: (1) business cross border payments, (2) investment management, (4) remittance payments, (5) capital markets and (6) title insurance. It is estimated that the impact of Fintech will consist of reductions of $44 billion from Roboadvice and $204 billion from Blockchain in the form of digital ledgers.  All areas of the revenue pool will be reduced as a result of these technologies, with the exception of capital markets as their revenues rise from $212 to $234 billion.

On the second chart, we looked at the specific impact each technology will have on the respective industry. It shows that Roboadvice will solely affect inventory management as it reduces the industries revenues by $ 44 billion. Alternatively, distributed ledgers will lead to reductions in B2B Cross Border, remittance payments and title insurance. The reasoning for these reductions can be associated with the concept that the digitization of finance is typically a revenue-contracting development. Despite this, it can be noted that capital markets received an increase in revenue from Distributed Ledgers due to the fact that in secularly shrinking markets we equate cost-savings with expansion.