Cryptocurrencies have already become too big to be ignored by investors or regulators. By the time of the writing, the total estimated market capitalisation of tracked cryptocurrencies stood at $162bn, according to data from CoinMarketCap.com. Two cryptocurrencies actually account for the biggest proportion of this figure – Bitcoin at $91.6bn and Ethereum at $29.3bn.
The growing size of the cryptocurrency market has been driven, most recently, by so-called initial coin offerings (ICOs), in which a number of crypto-tokens are sold to investors. A lot of rising businesses have jumped on the bandwagon of raising capital through ICOs, as they see this as an alternative to having investors on board in their early stages of development (see comment: Dissecting the data of initial coin offerings).
These developments have drawn the attention of regulatory authorities around the globe and their reactions have varied significantly. In September, the central bank of China was the first to make it illegal to raise money through the launch of new cryptocurrencies. Financial regulators in South Korea followed suit and banned all ICOs, saying they had a “serious concern about the fact that the current market funds are being pushed into a non-productive speculative direction”, according to Business Insider.
The government of Abu Dhabi released guidelines for ICOs, according to CoinDesk, saying it would apply current anti-money-laundering and know-your-customer rules to token sales, categorising some as securities and others as commodities. In the US, regulator the Securities and Exchange Commission has already charged at least one ICO operator with fraud, as the operator falsely claimed its coin, dubbed Recoin, was backed by real estate.
Whatever the regulatory future of this space, cryptocurrencies would not have been possible without blockchain – the technology behind them. According to Investopedia, a blockchain is essentially a digitised decentralised public ledger of cryptocurrency transactions, allowing market participants to track all transactions without central record-keeping or a central authority. This is made possible by a network, in which each node – a computer – receives a copy of the blockchain, which is downloaded automatically.
The technology made the first cryptocurrency Bitcoin possible but its potential commercial applications extend beyond virtual currencies, as any type of document can be digitised, coded and inserted into the blockchain.
The blockchain technology has attracted the attention of corporate venturers over the past few years. According to GCV Analytics data, corporate interest in blockchain tech enterprises first rose sharply in 2015, when 15 corporate-backed investment rounds in blockchain businesses took place, while total capital raised was estimated at $383m. The number of such rounds continued to grow through 2016, when we reported 22 such transactions, estimated at $443m. This interest appears to be continuing this year – at the time of writing, GCV had already tracked 22 deals worth a total of $437m.
Most of the blockchain enterprises in which corporates are interested are in the financial services sector. However, some are in the IT, services, telecoms or even health sector. The majority tend to be based in North America –mostly the US – Asia and Europe
Leading corporate venturers in number of publicly-disclosed rounds were media and research company International Data Group, diversified conglomerate Alphabet, financial service provider Citigroup, financial firm Goldman Sachs and electronics manufacturer Qualcomm.
US-based cryptocurrency technology developer 21 Inc raised the largest recorded corporate-backed round in blockchain tech to date – $116m in funding from investors including Qualcomm Ventures, the corporate venturing arm of Qualcomm. The funding was raised over multiple rounds, according to digital currency news source Coindesk, and included $5m secured in late 2013 when the company called itself 21E6. Founded in 2013, 21 is still operating in stealth so the exact nature of its technology and business plan have not been disclosed.
