A Year Ago

In 2017, Hellman Friedman LLC bought Nets from a consortium of Danish banks for $5.3 billion, and it would appear to have made a rather large loss, as Mastercard has recently acquired Nets for $3.2 billion.

The acquisition gives Mastercard access to Nets instant-payment and clearing services and represents Mastercard’s largest purchase to date. According to the former chief market strategist of Ripple, Cory Johnson, Mastercard’s acquisition of Nets “is validation, real-time payments are the coming wave”.

Nets announced back in 2016, that it was establishing a “development lab” with a Blockchain technology firm called Coinify, although, there has been little other mention about the “fruits” from this initiative.

Real-time payments are on the US Fed’s agenda too, as it has announced the launch of “FedNow”, which is aiming to be accessible to all banks, no matter the size, for retail transfers those allowing payments to be processed 24/7. Lael Brainard, Member of the Board of Governors of the Federal Reserve System, said: “They are seeing companies looking to establish a payment system that bypasses banks and fiat currency, Facebook being one among many but the one company with the ability for immediate wide dissemination”.

How much impact Facebook and Ripple have had on the payments sector is difficult to tell, but Blockchain technology would appear to have stirred this “once-sleepy sector” that is such a key part of our global economy into reviewing its services, which as to be no bad thing.

Meanwhile, the big Daddy in the credit card world, Visa, announced that it has joined a consortium of firms to invest $40 million into Anchorage, which offers custody solutions for digital assets. The continued building of new infrastructure like Anchorage is vital. It allows traditional banks and asset managers to engage in this asset class, as they need confidence that some robust systems and providers can support their involvement in this fast-growing sector.

Real Time Payments
The announcement that this week SK Group (South Korea’s largest telecoms company) is going to invest $10 million into ConsenSys will come as no surprise, as South Korea has for a while been rapidly digitising its economy.

ConsenSys is a Blockchain consulting business set up by Joseph Lubin, co-founder of Ethereum. Although this is not the first time these two companies have signed an agreement, in 2018 they agreed to collaborate on technical training to help developers who wished to use the Ethereum blockchain.

SK group has been active in the Blockchain sector, having agreed to support Ok CashBag which is a Korean mileage loyalty program that has enrolled approximately 38 million people - 50% of South Korea’s population! The intention is to use Cryptocurrencies as part of the incentivisation program that Ok CashBag operates.

LG, the second-largest manufacturer after Samsung, has been developing a Blockchain-powered platform to help improve the transparency of information about food that is supplied to school canteens across South Korea. The intention is to have details about the production, processing, distribution, purchase, and consumption of products that school canteens use. As all of this information will be recorded on a Blockchain, it will become available for authorities, schools, and parents to see what is being consumed and who the suppliers are.

Samsung, which has dominance over the insurance, real estate, electronics, and payment sector in Korea, has been allocating most of the resources of its crypto and Blockchain department by developing its Cryptocurrency ASIC mining hardware. This hardware is used by people wishing to mine Cryptocurrencies like Bitcoin.

Hyundai, which is Korea’s leading car manufacturer, has been building a Blockchain-powered platform to monitor information about second-hand cars, such as mileage, age and service history.

The above examples are just a snapshot of the different ways that Korean conglomerates are using Blockchain technology, and how this technology is impacting on the day to day lives of Koreans. The Korean population is ageing quickly, as families tend to be smaller, meaning that there will be fewer workers to support its elderly retired citizens. This is one of the reasons why Korea is embracing new technology to ensure that it is able to create high-value exports and to be able to use technology as opposed to heavy manufacturing, which is arguably where much of its economic success historically came from.

Almost daily there is a report of traditional investors embracing Digital Assets.

The CEO of Goldman Sachs, when asked if his firm is looking to launch a Digital Currency like JP Morgan, replied “Assume that all major financial institutions around the world are looking at the potential of tokenisation, stablecoins, and frictionless payments” 

Meanwhile, Wall Street seasoned-investor Henry Kravis (co-founder of KKR), has been investing in Parifi Capital which has $190 billion under management, and claims he now spends most of his time researching Blockchain and Cryptocurrency opportunities. Billionaire Peter Theil (co-founder of PayPal) has, according to Blomberg, also been investing in Blockchain and Digital Assets.

The chart shows the volume being traded in Bitcoin, and as you can see, even though the price of Bitcoin is still over 40% below the 19,454 it reached in 17th December 2017, the volume of Bitcoins being traded has been strong over the last few months.

Fidelity, with over $2.5 trillion under management, carried out a survey of 441 of its institutional clients and found that 22% had already bought a Cryptocurrency, and 47% thought that this asset class had a place in the funds it manages.

One of the concerns that have held back institutions has been that many of those that use Cryptocurrencies, like Bitcoin, are carrying out illegal activities. Therefore, in the recent analysis from Chainalysis, Bitcoin transactions have fallen in 2012 from 7% to less than 1% in 2018.

BitMex, which is the world's’ largest Crypto platform, last week reported over $16 Billion of trades in a day, demonstrating the clear demand and interest in this new asset class. Meanwhile, the Chicago Mercantile Exchange (CME) announced Bitcoin futures hit $1.7 billion in notional value traded on June 26th, 2019. This represents a 30% increase from its previous high, reportedly as a result of institutional interest.

Possibly one of the most powerful endorsements recently came from Mark Carney, Governor at the Bank of England who said, “Distributed ledger tech (DLT) projects have the potential to ‘unlock’ billions of pounds in capital and liquidity— and that they might one day see closer cooperation with the central bank itself.”

Digital Assets
Softbank Vision fund is a massive Venture Capital fund, having participated in more than 530 funding rounds, investing over $82 billion in 200 different companies globally.

It is based in Dubai, and those that have invested in Vison fund include Apple, Larry Ellison from Oracle, and the Saudi Arabian sovereign wealth fund. Softbank’s Vison fund crystallised a $7 billion profit this week, as Uber carried out its IPO, because Softbank had invested in the taxi firm a few years ago. Softbank has recently reported a profit of over $17 billion, considerably helped by its Vision fund.

This week Softbank’s Vision fund invested in two firms that are using Blockchain technology in the financial services sector, buying $900 million of Wirecard, which is a German publicly quoted company. Softbank also invested $800 million into Greensill, doubling its value compared to last year from $1.6 billion to over $3.5 billion.

This now arguably makes Greensill more valuable than Oak North, which is valued at $2.5 billion, so Greensill is now the UK's most valuable FinTech company. This is impressive given Greensill was only established in 2011!

Wirecard is a digital payments company which has been active in the Crypto payments sector, having worked with the company Crypto.com. Crypto.com is based in Hong Kong and offers Visa debit cards, which it claims are the first Crypto debit cards to be made available in Asia. Wirecard is also working with Telegram, which was one of the largest Initial Coin Offerings (ICO) to date, as it raised over $1.7 billion last year. Telegram is using Wirecard to build a digital global payments platform to create TON, which is to be Telegram’s digital token.

Greensill was set up in 2011, and its HQ is in the UK with offices also in the US, Germany, Australia, and South Africa. Greensill provides supply chain funding (also called working capital finance) to help companies’ cash flow. Greensill also uses Blockchain technology and sees huge potential for further growth, as it claims that over $55 trillion of cash is locked up in businesses that it aims to target.

The above graphic illustrates the types of opportunities that Greensill states are available for it to help finance. Greensill offers businesses early payment based on their invoices, due to be paid at a later date by large companies and government agencies. The payment fee to Greensill to provide financing is 1%, and Greensill is paid in full by the suppliers' customers when the invoices are settled.

However, the founder of Softbank, Masayoshi Son, despite proving to be a canny investor and making billions from holdings in Uber, Nividia, WeWork, and Flipkart, had to nurse a reportedly $130 million loss on Bitcoin. It is alleged that the Japanese billionaire Masayoshi Son bought Bitcoin when it was trading close to $20,000, and then sold his Bitcoins less than a year later when the price was closer to $5,000. So just goes to show even the best investors do not always get their timing spot on.

Serena Williams, who has won 23 tennis Grand Slams, has revealed via her Instagram (which has had over 22,000 likes) that she set up a Venture Capital fund in 2014, which has Coinbase as one of its investments.

Coinbase is a US-based Cryptocurrency exchange which was established in 2012. It has over 13 Million accounts, making it the largest Digital Exchange globally and, following its last $300million fund-raise, was valued at $8 Billion.
However, Serena would appear not to be alone, as there has been an increase in the amount invested in Crypto assets as the chart indicates.

According to Crypto Fund research, there are more than 750 different funds which invest in Crypto assets and have been set up as either Crypto Hedge funds or Crypto Venture capital funds. The value of the assets that these funds managed at the beginning of 2019 was $10 Billion which, despite the poor performance during 2018, was $3.5 Billion more than the start of 2018.
For those wishing for more information on 25 of some of the better-known and larger funds which invest in Digital Assets, this link may be helpful.

The USA government has announced that it intends to increase the amount it spends on Blockchain technology to $123 Million by 2022, compared to $10.7 Million in 2017, which would be a 1,000% increase!

Meanwhile, US investment into Blockchain technology outside of the government is expected to swell by over $37 Billion by 2025 from $1.8 Billion in 2018, which would be a compound annual growth rate of over 44%.
In Europe, a survey reported that it would spend by 2022 $3.5 Billion on Blockchain technology, and it cited as well as (financial services), manufacturing, resources, and distribution as the key areas in which it believes money will be invested in.
In spite of the naysayers, who have decried Blockchains and Digital Assets, we are starting to see governments, and multinational commercially-minded corporations investing in this technology and new asset class.

Blockchain technology is impacting our lives in many ways, and while there were lots of headlines in 2017 and 2018 about the price of Bitcoin and how Ripple had risen in value in a 12 month period by over 37,000%, large corporations have been busy behind the scenes.

Indeed, as the link at the end of this article illustrates, big businesses across the globe have been investing and trialing various projects to ensure that they are not left behind.

Blockchain technology offers a powerful combination of better security, greater efficiency, reducing costs of transactions and in many cases, reducing the number of parties which need to be involved in a transaction - and/or movement of goods and services.

What is interesting is that when you look at the list Forbes has compiled, typically of $ Billion businesses, they are from a wide variety of industries. It is more of a case of which business sector is not going to be transformed or impacted by Blockchain technology and, as CB Insights reported, listed 50 different industries and how they could change as a result of using Blockchain technology.

One way to look at Blockchain is to use a sporting analogy. In a game of rugby or football (soccer for our US readers), a player kicks the ball, then another player passes the ball and then passes to another team member, and then to another before they hopefully score. All these transactions are recorded in real time and all players and spectators can watch the game. Blockchains, in effect, digitise a series of shipments, transactions, and movements in real time, with much greater transparency between the relevant parties in the same way video records a football match. Once the parties have agreed what has happened (“blocks”) is real, the new blocks is added to the chain - hence Blockchain. Therefore, in effect, it enables the recording of transactions accessible to all parties involved and so no one can disagree or alter the information (who did “the throw-in” and who “scored”).

At any stage of the game and after it, everyone has an accurate, commonly-agreed picture of every move throughout the match.

In a survey of over 150 universities and endowments in Canada, USA and UK, 94% of the respondents said that they had already invested in Crypto assets - 54% directly and 46% using different types of funds, and only 7% said they were looking to reduce their exposure over the next year.

The survey, although released recently, was conducted in Q4 2018, i.e. when many Digital Assets prices were considerably lower than they are currently, and the sentiment was much more negative to this asset class.

However, the survey revealed that there are still concerns about investing in Digital Assets, such as custody, liquidity, and regulation.

Harvard, with its $39 Billion foundation, is reportedly going to invest $11.5 Million into Blockstack, which will be the first Security Token Offering (STO) that will comply with SEC A+ Regulations, as Blockstack looks to raise $50 million later this year.

Muneeb Ali, co-founder, and CEO of Blockstack PBC, said in the press release:

“Blockstack has been working with securities lawyers to create a legal framework that can enable blockchain protocols to comply with SEC regulations. Our framework is consistent with the latest SEC guidance released last week. Upon qualification, we believe that this offering may be the first time a blockchain project receives approval to access the public U.S. securities markets.”

This is clear evidence that institutional investors have been buying Digital Assets. As we see more   STOs being launched, which will be subject to much tighter regulation, custody providers ought to be able to offer their services to these types of assets. This is important as the lack of custody providers is another reason cited as to why institutions have not significantly invested in Digital Assets to date.

A New York Times journalist has reported that Facebook has been talking to Venture Capital (VC) firms to raise $1 Billion to invest in its cryptocurrency project.

Facebook is looking to launch Facecoin in India on its WhatsApp platform later this year, and it is thought Tim Draper, a VC manager who backed Skype, Bitcoin ( five years ago) and Coinbase, is considering to participate and invest.

Facebook is allegedly going to issue a stablecoin, although it is not clear yet whether it will be pegged/linked to the US$, or to a basket of international currencies. Given Facebook‘s global reach of users, a stablecoin based on a basket of currencies could be an interesting proposition. While the concept of investing in a basket of currencies is not new, as it has been possible to invest in such an asset for a while and there are Exchange Traded Funds (ETFs) securities that offer this exposure, a stablecoin that gives exposure to a basket of currencies would be unique as a Digital Asset.

Mark Zuckerberg, the founder and CEO of Facebook, who is reportedly worth over $66 Billion, has spoken a lot about Facebook’s plans to launch its own Digital Currency, and his company now has over 50 people working on this project, including David Marcus, the former President of PayPal.

Some are predicting that Facebook is looking to offer an alternative to the US$ and emulate the success that We Chat in China has had, offering a money transfer solution. In any event, with Facebook’s financial muscle and strong balance sheet (as it is sitting on over $40 Billion of cash and investments), it is surprising that it is looking to raise more capital. So, what else is this global titan, which has been the subject of so much recent criticism up to now, and will the launch of Facecoin really enable Facebook to attack the lucrative financial services sector?

There could be a much bigger story here as Facebook looks to further monetise our behaviour and gather even more data about what we buy and sell, then selling this data to their advertising clients. Facebook could reward users, based on the number of “likes and shares” people make, whether it be on Facebook, WhatsApp or Instagram, as they are all part of the same organisation. How long though will it be before we see Amazon, Apple, Google Microsoft, etc. issuing their own Digital currencies, bypassing banks and governments, in a scramble to be the go-to Digital alternative payment mechanism?

Social Media
AXA XL, Europe’s second-largest insurance company, who made $2.6 billion profit in 2018, has announced that it is partnering with New York-based Assurely, an Insurtech startup, to offer insurance cover for firms that are involved with Crowdfunding and or Security Token Offerings (STOs).

The new product is called CrowdProtector and provides issuers protection against investor complaints and lawsuits so investors may get their principal investment returned should the issuer misuse the funds, purposefully misrepresent information in their offering documents, or steal the money.

This is significant as institutions, as part of their due diligence process, look for issuers to have insurance arrangements in place prior to investing. Historically investing in small businesses and start-ups had largely been the preserve for wealthy investors and specialist funds. However, with the advent of Crowdfunding and now STOs smaller investors are able to get access to what are often start up companies, so this insurance cover is welcome to potentially offer protection to these often less sophisticated investors.

Kakao has just raised over $90million in a private coin offering / Initial Coin Offering (ICO) and is looking to raise a further $300million.

This is being touted as evidence that the “Crypto Winter” is over - but as they say ‘one swallow does not a summer make’. Kako targeted existing users, larger investors, and funds, and is looking to launch a blockchain platform that will target games and travel apps.

The blockchain platform is called Ground X and includes game developer Wemade Entertainment Co, Watcha Inc., and Travel Agency Zanadu as they look to expand the number of users to over 10million in the next year.

So far in 2019, we have seen 65 ICOs raise over $554million which is substantially less than 2018, but shows that ICOs are still being used to finance businesses. Kakao demonstrated that it is still possible to use the ICO as a funding mechanism, but only by accepting vetted typically High Net Worth private clients and institutions. This remains a long way from the ICOs that raised tens of Millions from thousands of private clients which many called were calling the democratization of capitalism last year…

Guy Hirsch, Managing rector of eToro U.S., sees the increased interest and investments in Digital Assets as a clear “generation shift."

He stated via press release: “we’re seeing the beginning of a generational shift in trust from traditional stock exchanges to crypto exchanges. At the heart of this change are the asset classes themselves.

Younger investors’ experience with the stock market has seen a great deal of loss of trust, with the fall of Lehman brothers...” One of the benefits of people investing in digital assets is that companies can know who their actual shareholders are and so have a relationship with them, and reward so offer them shareholder perks e.g. discounts off goods and services. This is almost impossible when shares are held as they currently are, in nominee structures.

Potentially companies could have no need for share registrars saving them money, as shareholders records can be updated in Real Time, which in turn would help regulators know who owns what which at the moment is impossible for a listed quoted company.

Asset Management
Digital Currency
While this is a survey from 2018, it is interesting to see 95% of the 1,000 blockchain-savvy executives from a variety of business sectors all with a turnover of $500m claimed they would be investing in Blockchain technology.

The report found that 26%of companies were looking to invest anywhere between $1 million and $5 million into blockchain technology, while 23% will spend between $5 million and $10 million. Moreover, out of all of the participants surveyed, 65% reported that their organization will invest $1 million or more in blockchain technology in the coming year.

The organisations with the largest investments will be from Mexico, France, and Canada respectively. It will be interesting to see in their 2019 survey what firms actually have done!