Q3 Cryptoasset Industry Funding Roundup
Every week the Mosaic research team will delve into important topics within the cryptoasset space.
Jason Yannos from Mosaic
The bear market of 2018 continues to linger on despite tremendous interest from large financial institutions and considerable progress made towards development activity in the cryptoasset ecosystem. Predictably, high volatility has and will continue to be a hallmark of the market on a quarter-by-quarter basis. For example, the third quarter of this year experienced several periods of above average volatility; however, Ethereum and the ERC20 token complex was hit extremely hard on the downside.
Over the third quarter of 2018, Ethereum experienced a mass exodus from token holders and market participants. On July 1st, 2018 Ethereum was trading at $451.64 USD and finished the quarter on September 30th at $231.62 USD, marking a loss of 48 percent. Alternatively, while experiencing high periods of volatility over the third quarter, Bitcoin primarily traded range bound. On July 1st, Bitcoin was trading at $6,385.82 USD and finished the third quarter on September 30th at $6,625.56 USD, posting a small gain of 3.6%.
The carnage in the price of Ethereum and the ERC-20 universe has been fuelled by two factors. Firstly, the increased momentum amongst several token projects selling large chunks of their treasuries to lock in purchasing power and preserve their future runways. Of the entire ERC20 complex, 24 percent was sold between the second and third quarter of 2018 where cumulative treasury holdings stood at 4,463,226 ETH in April to 3,741,879 ETH in August.
The second factor was a dramatic decrease in funds raised for token projects through the form of ICO’s. Funding for ICO’s was fairly healthy in the second quarter of 2018 where funding raised in May was substantially higher than any month in 2017 at $2 billion USD illustrating the insatiable demand for exposure to the asset class; however, by September funding through ICO’s drastically dropped by a factor of 11.1 to $180 million USD — the lowest month in all of 2018 thus far.
Despite 2018 being a tumultuous year in the public cryptoasset markets, investment funding into blockchain start-ups from private market investors has been nothing short of incredible. 2018 marks a record year where funding into the space as a whole as of the third quarter of 2018 surpassed all of 2017 — $3.9 billion USD has been raised to date into blockchain startups through private market investors marked by 384 deals.
Of the $3.9 billion USD raised, 10 companies represent a little over a third of the all venture capital investments made to date in 2018 — Bitmain, DFINITY, Basis, R3, Circle, Seba Crypto, Ledger, Paxos, Uphold, and Figure. Of the 10 largest deals to date, Bitmain represents the largest investment into the space where Sequoia Capital China took the lead on the on the company’s series B round, independently investing a whopping $400 million USD putting a valuation on the company of $15 billion USD at the time. Additionally, At the end of the third quarter, Bitmain officially filed for its long awaited initial public offering (IPO) on the Hong Kong Stock Exchange (HKEX). It is unclear as to how much the company is currently valued at in its pre IPO valuation; however, analysts have estimated that the company will go public between $40-$50 billion USD — approximately 20 times the company’s earnings.
While it is impossible to predict whether or not the bear market in the public cryptoasset markets will come to an end as we wrap up 2018, it is evident that there is an insatiable demand for deals into the space through the private markets. Until there is a substantial inflow of new capital in the public cryptoasset markets, a clear indication of a potential Bitcoin ETF, and further clarity amongst key regulatory bodies to the future treatment of ICO’s, market participants should expect this trend of increased venture capital investments into blockchain startups through the private markets to continue to gain further steam into year end and throughout 2019.
End of weekly research report
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This article is intended for informational purposes only. The views expressed herein are not and should not be construed as legal or investment advice or recommendations. Recipients of this article should do their own due diligence, considering their specific financial circumstances, investment objectives, and risk tolerance before investing. The individuals contributing to this article have positions in some or all of the assets discussed. This article is neither an offer, nor the solicitation of an offer, to buy or sell any of the assets mentioned herein.
