Cryptocurrency and blockchain investments in 2021 have already exceeded last year’s record full-year total, new data from KPMG show.
The total global investment activity in blockchain and cryptocurrency for the first half of 2021 totaled $8.7 million, more than twice 2020’s figure. Thus far, the year ending on June 30 has seen 548 investments activities, including venture capital, private equity, and mergers and acquisitions.
“A significant amount of institutional money flowed into the crypto space, highlighting the broadening of the investor base,” the report said. “Investor awareness and knowledge of the sector is growing.”
KPMG’s recent 78-page report, titled “Pulse of Fintech H1 2021,” looked into various global investment activities for the first half of the year, detailing 2,456 investment deals worth $98 billion. Among the burgeoning sectors were cryptocurrencies and blockchain, the report said.
The firm found that investors now have a deeper understanding of what crypto assets are and have evolved into operational and procedural aspects of digital assets from custody to storekeeping.
Beyond having a fuller comprehension of the space, the report also found two factors that have driven the surge in investments: venture capital and NFTs.
VC investment in the crypto and blockchain space was “very strong,” the report found, with several companies raising multiple $100 million funding rounds. The notable ones the study highlighted were BlockFi ($350 million), Paxos ($300 million), Blockchain.com ($300 million), and Bitso ($250 million).
NFT interest also contributed to the spike, the report added.
“Interest in non-fungible tokens is beginning to gain more traction, with interest in a whole range of new types of assets, ranging from professional real estate to more fragile assets which can be tokenized or fractionalized,” the report said.
Ahead, KPMG said it expects continued growth of the cryptocurrency space, further focus on regulatory frameworks, and the evolution of exchanges focused on areas such as NFTs.
Billionaire investor Mike Novogratz has criticized Senator Elizabeth Warren’s anti-crypto stance, saying decentralized finance, or DeFi, can be a progressive force that is more transparent for consumers than banks.
Warren on Tuesday sent a letter to Treasury Secretary Janet Yellen calling for tougher rules on cryptocurrencies and related industries. The senator is concerned that retail investors are getting hurt in a volatile and unregulated market.
But Novogratz tweeted to Warren on Tuesday night: “You really don’t seem so progressive to me.”
The famed crypto investor said: “Banks charged $12 billion in overdraft fees, a fortune in ATM fees, a fortune in checking account fees. But you keep going after crypto where saving and money transfer is a fraction of banks.”
He added: “If banks had the transparency of DeFi protocols, we would not have had the mortgage crisis. DeFi will win because it’s better. [Automatic] settlement. Bearer assets. Composability. Transparency.
“We just need to solve for KYC [know-your-customer protections] which is coming. We need to educate our politicians.”
DeFi is a catch-all term for financial products built using blockchain technology that do not require a central authority, such as interest-bearing accounts and exchanges that do not need banks, or clearing houses.
Estimates of the size of the market vary, but CoinGecko reckons the market capitalization of the top 100 coins used in the DeFi world is more than $80 billion.
Warren included DeFi on her list of “growing threats” that crypto poses to consumers. She is among the lawmakers and regulators concerned that DeFi’s lack of centralized authorities mean amateur investors have next to no protections and could get badly burned.
The senator said to Yellen that the Financial Stability Oversight Council must “act quickly to use its statutory authority to address cryptocurrencies’ risks and regulate the market to ensure the safety and stability of consumers and our financial system.”
Social, or community, tokens are going to be the next big development in the crypto market and have the power to disrupt all kinds of traditional industries, according to RealVision CEO Raoul Pal.
Pal, who used to run hedge fund sales at Goldman Sachs, before retiring at 36 and devoting himself to other investments, told Insider in an interview he’s so sure social tokens will boom that his company is planning to launch one over the next year.
Community tokens are a form of cryptocurrency that are linked to a company, an organization or even a person. The idea is the holders of that token will get perks from the issuer, such as exclusive content, access to group chats, or digital merchandise.
“It’s the biggest thing I’ve ever seen, we all know how big crypto is, but within crypto, community tokens are going to change all business models,” Pal said.
“When you realise that tokenizing things changes the equation – it will not be long before Disney tokenize, because they have super fans, who want access to parts of the community. So you could have a Star Wars community, or a Disney animation community and people are fanatical about this,” he said.
A sense of community has been a big factor in the growing adoption and popularity of bitcoin, the largest cryptocurrency by market value.
Pal said he believes the market in social tokens will go from being a “billion dollar” business to a “trillion dollar” one in the next five to 10 years, so much so that he’s planning one of his own.
“I’m trying to work on it. We have a great, amazing community of super smart people all around the world. They write to us all the time saying please can you create a token, we want to be a part of this, we want to be part of this kind of expert network of people that love finance and, you know, love investing and learning,” Pal said.
Like many other digital assets, social tokens are decentralized and run on a blockchain network, much like traditional cryptocurrencies, or digital collectible items like non-fungible tokens.
Another notable example is the $RAC token by musician and producer RAC. The community token enables his fans access to private discussions, merchandise and other exclusive content.
“$RAC is a token built on ethereum that I want to give to fans who support the RAC project, and who want to build it alongside me. By rewarding my most loyal fans, we can create a community where tokens unlock access to various perks and exclusive content,” RAC said in a blog in 2020.
Anyone can create a community token. Pal outlined the steps that a person, or company, would need to take to create an effective one.
“You need to give [holders] benefits of community, utility of community so that they get discounted tickets, ability to get extra merchandise, ability to get access to NFTs, ability to have meet and greets, ability to chat with the artists, you need to generate all that ecosystem where everybody can connect and bond and everybody feels close to the center of the community, the influencer,” he said.
Amazon is looking to hire someone to lead its digital currency and blockchain initiatives as more big tech companies expand their businesses into the growing sector.
The position will fall within the company’s payments acceptance and experience team and will be based in Seattle.
“You will leverage your domain expertise in Blockchain, Distributed Ledger, Central Bank Digital Currencies and Cryptocurrency to develop the case for the capabilities which should be developed … You will work closely with teams across Amazon including AWS,” the listing said, referring to Amazon Web Services.
The position requires 10 0r more years of experience in product or program management or business development, and candidates will preferably hold an MBA.
“We’re inspired by the innovation happening in the cryptocurrency space and are exploring what this could look like on Amazon,” an Amazon spokesperson said in an email. “We believe the future will be built on new technologies that enable modern, fast, and inexpensive payments.”
Three US states have said cryptocurrency platform BlockFi may have violated securities law by offering its interest-bearing accounts within their jurisdictions.
All three states – New Jersey, Alabama, and Texas – said the cryptocurrency platform did not register its BlockFi Interest Accounts, or BIAs, with the respective state regulators, and that they may be unregistered securities offerings.
BIA allows clients to deposit their cryptocurrencies and earn interest, depending on how much and which types of assets are deposited.
On July 20, New Jersey issued a summary cease and desist order banning BlockFi from selling unregistered securities through its BIAs and to stop accepting new BIAs in the state. The state said this product violated the state’s securities law.
BlockFi CEO Zac Prince in a tweet revealed that New Jersey, where his firm is based, gave them a week’s worth of extension until July 29 before the ban takes effect.
The next day, Alabama alleged that BlockFi was selling unregistered securities to partly fund crypto lending.
On July 22, Texas filed a cease and desist order against BlockFi and gave the firm 20 days to respond. The state said it notified the cryptocurrency platform as early as April that the company may be in violation of state securities regulations.
Cryptocurrencies and stablecoins have boomed in 2021. And central banks around the world are increasingly keen on their own digital currencies. But how do they all work and what are they used for?
Cryptocurrencies are basically digital currencies that aren’t controlled or issued by a centralized authority, such as commercial or central banks.
These coins are sent back and forth on enormous peer-to-peer networks – essentially groups of computers that share data.
The innovation of cryptocurrencies is that the “ledger” that keeps track of transactions – known as the blockchain – is overseen and verified by network users known as “miners.” Miners collectively do the work of a central authority, checking people aren’t trying to spend coins twice, and earning newly created bitcoin in return.
“What we aim to do with the blockchain is to make this ‘trustless’ so that nobody has overall control of it,” says Ben Edgington, a software developer for the ethereum network. “It’s fully democratic [and] it’s fully accessible.”
Bitcoiners say it’s ‘digital gold’
When bitcoin was launched by the anonymous person or group Satoshi Nakamoto in 2008, many thought it could be used for payments. In reality, it’s way too volatile.
Now, many bitcoiners say its scarcity – only 21 million coins can be mined – means it will hold its value and protect investors against inflation. Others say it’s purely speculative.
Other cryptocurrencies have different uses. The ethereum network, for example, can be used to build applications like collectible “non-fungible tokens.“
Cryptocurrencies are highly risky
In bitcoin and other networks that follow its model, miners verify transactions by using large amounts of computing power to solve complex math problems. Bitcoin’s mining system uses as much electricity annually as medium-sized countries. Other cryptocurrencies are less energy intensive.
Cryptocurrencies are largely unregulated and are some of the riskiest investments out there. Bitcoin has plunged around 50% since its April record high of close to $65,000.
Wild volatility has been a huge deterrent for some investors as it can make crypto harder to use. That’s where stablecoins come in. Stablecoins maintain a “stable” value with a peg to other assets, like the dollar.
As with the rest of the cryptocurrency world, a lack of regulation means investors have almost no protection if their stablecoin suddenly collapses.
Central bank digital currencies
Countries are trying to find ways to make it easier to spend and send money – and keep control of payment systems that are increasingly private (think PayPal or Visa). A digital currency issued by central banks directly to consumers could be the answer.
Right now, private banks and payment companies are the most important players in the everyday use of money. But a central bank digital currency (or CBDC) would be a digital version of banknotes and coins, letting people hold and make payments in central bank money.
CBDCs could speed up transactions for individuals and big institutions, Chris Giancarlo, founder of non-profit Digital Dollar Project, told Insider. The DDP plans to test CBDCs in real-world situations.
“If you can send a photograph to Japan in a second, why can’t you send money in a second?” he said.
Central bankers also think CBDCs can make the financial system safer. Although unlikely, even a big global payment system could feasibly collapse.
Some bankers are concerned
One concern is privacy. Some governments may design CBDCs so transactions are anonymized, like cash, but others won’t. Privacy questions have arisen over China’s trial digital yuan.
“With a CBDC, the government would have direct access to all your spending patterns,” Bobby Ong, co-founder of data firm CoinGecko, says.
Some bankers are worried CBDCs could remove them from key parts of the financial system. CBDCs could reduce the demand for commercial bank accounts and cut banks out of the business of verifying transactions, although central banks are working on the details.
Anthony Di Iorio, a co-founder of the ethereum blockchain, is wrapping up his time in the cryptocurrency world due to personal safety concerns, and because he no longer wants to be known as the “crypto guy.”
He recently told Bloomberg he wasn’t too encouraged by the risk profile attached to the industry.
“I don’t feel necessarily safe in this space,” he said. “If I was focused on larger problems, I think I’d be safer.”
The 48-year-old Canadian has had a security team since 2017, and mostly been accompanied on his travels, Bloomberg said. He soon plans to sell his current blockchain venture Decentral to focus on philanthropy and other projects unrelated to crypto.
Decentral, founded in 2014, is a Toronto-based wallet and crypto services provider whose flagship product, Jaxx Liberty, counted about 1 million customers this year.
Di Iorio, who estimates his startup is worth “hundreds of millions,” expects to strike a deal in fiat money, or in equity, rather than in crypto. Forbes lists his own net worth as high as $1 billion.
He further told Bloomberg he wants to transition to being someone who takes on complex problems. He’s currently involved with an initiative called Project Arrow which is involved with a zero-emission concept vehicle run by a high-school friend.
Di Iorio co-founded ethereum in 2014 along with seven others in Switzerland in a rented house they called the “spaceship.” Among them, Vitalik Buterin is the only one still working on the blockchain. Ether, the network’s native token and the world’s second-largest cryptocurrency, held a market value of $221 billion as of Monday, according to data from coinmarketcap.com.
Ether has continued to grow in popularity this year, showing a 53% increase in trading volumes quarter-on-quarter to an average of $3.25 billion a day on global exchanges, a report from Coinbase shows. Meanwhile, bitcoin has seen a 14% decline in the same period to $4.01 billion.
“I will incorporate crypto when needed, but a lot of times, it’s not,” Di Iorio said. “It’s really a small percentage of what the world needs.”
The cardano network has completed an upgrade that will allow it to incorporate more advanced smart contracts and decentralized finance applications to its blockchain.
The Swiss company’s developer Input Output HK, a research and blockchain engineering firm, made the announcement in a tweet on Wednesday.
“Delighted to report around 19.44 UTC today we successfully forked the alonzo testnet to the new alonzo white node. The new network is happily making blocks already,” the company tweeted.
Smart contracts are effectively contracts that execute automatically once a series of conditions have been met. They also allow engineers to use the blockchain to perform a range of functions like send information, or documents. DeFi applications allow two counterparties to exchange capital, or assets, without an intermediary.
The network’s native ada token briefly climbed up to a session high of $1.29 on Thursday after the news, before slipping back to around $1.2203, marking a 3.4% daily drop, based on Coinbase data. Ada is the fifth largest cryptocurrency by market capitalization, according to Coinmarketcap.
Input Output HK said it would monitor the network over the course of Thursday.
“We expect a number of updates as we add features to alonzo white,” the company added on Twitter.
This was the first in cardano’s “alonzo” series of upgrades that is scheduled to finish in September.
Cardano’s alonzo plans should help the company compete with the likes of the ethereum network, whose blockchain underpins the majority of existing DeFi applications and smart contracts.
Baltimore Orioles slugger Trey Mancinis is the latest sports star to release their own digital collectible tokens. The first baseman’s non-fungible tokens will be up for sale on Monday to raise money for his cancer charity since he beat the disease earlier this year.
The NFTs will go up for sale on the Ureeqa platform. The professional baseball player has partnered with Ben Armstrong, a TikTok influencer, who announced the sale in a tweet on Friday.
“This drop is extremely important to me,” Mancini said in a statement quoted by Coindesk. “Not only is it my first experience with NFTs, but the cause is near and dear to my heart.”
NFTs are essentially digital collectibles that represent real-life assets such as artwork, music, videos or even virtual land or animals. Each is unique and is verifiable and cannot be exchanged for another, unlike a cryptocurrency.
Mancinis has joined the plethora of celebrities who are using NFTs to raise money such as artist and producer Jay Z, rapper Ja Rule, entrepreneur Rob Gronkowski, actor Lindsay Lonhan and singer Katy Perry. What separates Mancini from the rest is the fact that his money will go to charity.
“All proceeds go to his foundation working to support cancer research and those who face serious illness and hardship,” Amstrong wrote on Twitter.
Mancini’s career began in 2016 and was interrupted when he was diagnosed with colon cancer last year. This year, he beat the disease and has dedicated his charity, the Trey Mancini Foundation, to raise funds to fight colon cancer.
A court or other trusted third party should be able to reverse cryptocurrency transactions if they are fraudulent or the result of criminal activity, US Rep. Bill Foster said as he called for new regulation in an Axios interview.
The Illinois Democrat, who co-chairs the Congressional Blockchain Caucus, said that until the crypto industry can come up with solutions to deal with crypto-ransomware attacks, anonymity for those involved in transactions would be “very hard to sustain.”
“You would have to be able to go to a court to unmask participants under some circumstances. It does not have to be visible to the whole world, and that may not even be desirable,” Foster said in the interview on Tuesday.
The congressman proposed bringing in a regulatory framework that would provide a “very heavily guarded key of a cryptographic backdoor” to the likes of federal courts, so they could reverse transactions on a blockchain.
The proposals may provoke outcry from crypto fans, keen to keep digital assets free from government control and manipulation, he acknowledged. But Foster said he could think of no better solution.
“Now, I’ve just said about three things there that will drive the crypto purists berserk, like the trusted third party and so on,” he said. “But in fact, there’s not a technological alternative that I’m aware of.”
“For most people, if they’re going to have a big part of their net worth tied up in crypto assets, they’re going to want to have that security blanket of a trusted third party that can solve the problem,” he added.
Colonial Pipeline paid a bitcoin ransom worth about $4.4. million to hackers in May, after its pipeline network was paralyzed in a cyberattack, though US authorities were able to recover the majority of the payment. The major cybersecurity incident forced the closure of one of the most important conduits for fuel supply in the US, causing gasoline shortages in some states.
As a result of that incident, future crypto regulations are likely to explicitly target access to information about individual ownership of accounts, Carlos Betancourt, cofounder and principal at crypto hedge fund BKCoin Capital, told Insider. That will enable law enforcement agencies to track the money flows – just like they do today between banks, he said.
While Foster stressed the US doesn’t want to go down China’s route of heavy surveillance over the crypto space, he does see a need for something to be done to combat criminal usage.
“We’re going to have to establish a wall between the legal and the illegal,” he said.