Crypto Investment Maturing Despite Downturn, Says KPMG Report

In Brief

• A KPMG report has highlighted how the market has actually diversified.
• Institutional investors have somewhat supplanted retail investors, causing crypto to trade more like traditional investments.
• Growing adoption of Bitcoin as legal tender could also inspire other developing nations, it added.
  

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Cryptocurrency-focused companies attracted $14.2 billion in investment during the first half of the year, despite the downturn in the markets, according to a report from KPMG.
In spite of difficult market circumstances, largely driven by global inflation, investment by mid-year remained well above all years prior to 2021, according to the H2 FinTech Report from the Big Four accountancy firm. “This highlights the growing maturity of the space and the breadth of technologies and solutions attracting investment,” the report said.

Amid the slowdown in crypto interest and investment, retail firms offering coins, tokens and non-fungible tokens (NFTs) have been among those most affected, the report noted.

Although it added that investment in crypto is likely to continue trending downwards for the remainder of the year, it highlighted the future use of blockchain in the modernization of financial markets, particularly in infrastructure.

According to the report, some of the largest deals during the period came from venture capital, including a $1.1 billion raise by Germany-based Trade Republic. Other prominent raises highlighted by the report included US-based Fireblocks at $550 million, Bahamas-based FTX at $500 million, and ConsenSys at $450 million.

Key highlights of report
The report listed several key highlights from the crypto and blockchain space during the first half of the year. For instance, it acknowledged how the crypto investor profile has shifted from exclusively retail to increasingly institutional and corporate.

It says this has changed the very nature of crypto assets, which have consequently started trading similarly to more traditional assets.

Next, the report underscored “an increasing interest in the use of cryptocurrencies in order to support crypto sovereignty and move away from the use of existing currencies like the US Dollar.”

Due to a growing focus on monetary sovereignty with the adoption of Bitcoin as legal tender, first by El Salvador last Sept, then later by the Central African Republic “other developing nations could follow their lead in 2022 and beyond.”

What lies ahead?
In the coming period, the report reflects on the recent hardships and how they have forged certain companies, but also pushed many others beyond their limits.

But while some have been forced to shut down or recapitalize at lower valuations, “well-managed crypto companies with healthy risk management policies, long-term vision, and strong cost and risk management approaches [are] surviving.”

In terms of industry focus, the report believes it will likely lean towards solutions related to compliance and crypto transaction traceability. An increasing interest in stablecoins, was also noted, “particularly from corporates looking to gain the operational advantages of crypto, including costs, delays, visibility, liquidity, and ease-of-use.”

Finally, the report envisioned, “innovative partnerships between crypto firms and companies in other industries in order to address ESG [environmental, social, and governance] concerns.”

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage.