How crypto market reacted to COVID-19?

Bitcoin and altcoins may provide some of the best solutions to drive a new economy in the post-COVID-19 world. Here’s how crypto space reacted to pandemic crisis.

Description: As the Covid-19 crisis continues to disrupt global markets, is it time to hedge Bitcoin, cryptocurrencies and other digital assets?

COVID-19 continues to affect many people’ lives. Due to the pandemic, economic activity in many countries of the world is still on hold, with undoubted implications for investment activity, employment dynamics and the well-being of people.

Powerful macroeconomic factors also affect the crypto market, which was notably evident during the Bitcoin March collapse. Nevertheless, there is still some business activity left in the digital currency market — promising projects attract millions of investments, while large companies are becoming even larger through mergers and acquisitions. Let’s take a look at the changes in the investment landscape of the crypto market amidst the pandemic and slowdown in the world economy.

Changings in the investment landscape during COVID-19 pandemic

According to The Block, despite the pandemic, since the beginning of the year 265 blockchain projects have attracted $1.47 billion. Almost half of this amount came from just two companies:

  • Bakkt, which raised $300 million during the Series B round;
  • Binance, which bought the market’s leading CoinMarketCap web portal ($300–400 million in the range).

The chart below shows the dynamics of blockchain space investments by different rounds, life cycle stages and deal types:

If you exclude the March activity of Binance and Bakkt, the picture is as follows:

We can see a significant drop in investment volumes from February to March, which amounted to 61%. Subsequently, the indicators have steadily recovered: by 43% from March to April and by 79% — from April to May.

The total amount of investment in projects at late stages increased by 868% — from $6.5 million in April to $62.9 million in May. In contrast, the indicator on deals in the early stages decreased by 46%. Thus, it is possible that under current conditions investors are focusing on mature companies, which are perceived as safer investment opportunities.

Mergers and Acquisitions

18% of mergers and acquisitions (M&A) occurred in May. Also significant activity in this area was observed in February — 12% of M&A deals.

As can be seen in the diagram, there were many more such deals in some months of last year. The trend towards a decline in M&A activity over the last six months is particularly pronounced.

In May 2020, the median investment in early stage projects reached $10 million:

The overall investment trend is clearly negative — the number of deals has been falling for seven consecutive months:

Investment Geography

From January to February the number of large deals in Asia fell by 50%, from 16 to 8. During the same period, the same figure in North America increased slightly. In Europe, the number of deals fell slightly, from 18 to 16.

Asia picked up again in March, returning to January figures. At the same time, Europe and North America experienced a decline of 38% and 22% respectively. This may be due to the fact that Asian countries were the first to lift quarantine restrictions and this could have a positive impact on investment dynamics.

The most active investors

Digital Currency Group was the most active during the pandemic. The company invested in Horizon Blockchain, Zabo, Lolli, Skew and Transparent Systems. A lot of money was invested by Coinbase Ventures, Collaborative Fund and Pantera Capital — each of the companies closed four deals.

As already mentioned, Binance bought the CoinMarketCap. The most visited exchange bought the company BXB, which develops stablecoin on the basis of South Korean won. In addition, Binance invested in the regulated Indonesian exchange Tokocrypto.

Citibank was quite active in the blockchain space. Through Citi Ventures, the financial conglomerate invested in the Contour Network blockchain platform for digitizing letters of credit. Citibank also invested in the Komgo platform for trading in exchange commodities. Payment giant Mastercard invested in the Latin American firm Minka, working on a cloud banking platform, mobile wallet and digital currency payments.

Investments in infrastructure and services for institutions

According to The Block, to date, $2.1 billion has been invested in services focused primarily or exclusively on institutional investors. Exchanges (derivative and OTC platforms), payment solutions, custodial and leasing services dominate among the investment targets.

Exchanges are one of the most important components of the market infrastructure. Many spot markets including Binance, Bitfinex, bitFlyer, Bitstamp, Coinbase Prime, Kraken, Poloniex serve both retail and institutional clients.

The infographics below show the main players in the digital asset market infrastructure — lending services, spot and derivatives exchanges, brokers, custodians, market makers and clearing companies.

Many of these firms provide a range of services related to different areas. This trend can be expected to continue in the future with fewer and fewer companies focusing on just one type of service.

The diagram above shows that the greatest activity in this segment was observed in 2018 — significant funds were allocated to custodial services. The following year there was a significant decline, and in 2020 large amounts were spent on the development of derivative platforms.

The infographics below show 112 investors, each of whom has invested in at least one institutional-focused crypto product.

In particular, the ErisX crypto derivative platform has attracted investments not only from blockchain investors, but also from well-known representatives of the traditional finance world, including TD Ameritrade, CBOE, Fidelity, Nasdaq Ventures.

Digital Currency Group concluded the largest number of deals in this segment. In particular, the company invested in brokers SFOX and Tagomi (at the end of May, Coinbase bought it for $100 million), derivative platforms Bitnomial and ErisX, custodial services Curv and BitGo, as well as in Paxos, offering custodial, over-the-counter and other solutions.

Barriers of entry into the industry

The Block surveyed 38 representatives of firms dealing with digital assets on the problems that hinder investors in the traditional market from mastering the block and bitcoin industries:

  • 53% of respondents believe that regulatory uncertainty is the biggest deterrent to traditional investors;
  • 47% of the respondents are convinced that the digital asset market infrastructure is still underdeveloped and therefore not as attractive;
  • Approximately one-third of the respondents visited a relatively small market and its lack of liquidity.

With regard to ways to make the market more attractive, many survey participants noted the need for legal clarity, including from the Futures Trading Commission (CFTC), and the launch of regulated crypto products, including Bitcoin-ETFs. Some believe that industry players need more mutual coordination through initiatives such as the Chicago DeFi Alliance and the Virtual Commodity Association seeking to improve market standards. A small number of respondents consider clearing and custodial solutions particularly important for further market development and for attracting institutional clients.

According to the survey participants, the main risks of the new industry lie in such areas as storage, lending and margin trading. Some respondents see the risks as being “too versatile” for many digital asset platforms to offer not only trading, but also storage of digital assets. Others see the industry as threatened by the rapid growth in the popularity of financial products with high leverage, as well as by the blossoming of leasing services.

Among the advantages of crypto assets, many respondents singled out the possibility of hedging out macroeconomic risks. A significant part of respondents are attracted by innovation and transparency of new assets.

Conclusion

The coronavirus pandemic has only marginally reduced investment in crypto space. Business activity is gradually recovering, returning to last year’s levels. The investment structure has also changed slightly. Many market players have started to focus on more mature products, and the number of deals with projects in the early stages has fallen.

In the past years, the largest amount of funds went to projects dealing with custodial solutions. In 2020, most large investors prefer derivative products. As before, large players in the traditional market are scared away by legal uncertainty. There is an opinion that the launch of regulated products like Bitcoin-ETF may become a catalyst for institutional investment inflows.

The fact that large players are attracted by the innovativeness of cryptocurrencies and the industry itself is continuously developing is encouraging. Therefore, mass acceptance and influx of large money is indeed only a matter of time. Right now Bitcoin is trading right below $10 000 mark. It is not late to make more BTC in your wallet — join our Bitcoin cloud mining platform Hashmart.io to earn it on a daily basis!

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Andrey Costello

Andrey Costello

Bitcoin-maximalist. Optimistic family man and miner with six years of age. I write about complicated things from the future for people of our days.

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