- July 13, 2021
- Noelle Acheson
The pace of startup funding raises in the crypto industry, especially for businesses involved in building or operating crypto market infrastructure, has passed from a gentle canter to what feels like a gallop. I keep note of the raises CoinDesk reports on and did some counting this morning: 14 in January, 24 in February and so far this month – with a week and a half still to go – we’re at 32. That’s acceleration.
While most funding raises are under $10 million, so far this year there have been four (that I am aware of) that were greater than $100 million. Two of them were this week. One was crypto custodian Fireblocks, which raised $133 million. The other was a $170 million Series B round for a crypto market-infrastructure player that I confess had not been on my radar as much as it probably should have been.
I’m talking about Bitpanda, a crypto exchange and card issuer headquartered in Vienna that, with this raise, is now valued at $1.2 billion. This makes it one of Europe’s largest crypto platforms and Austria’s first unicorn ever. Let’s take a moment to appreciate that Austria’s first unicorn is a crypto company.
This raise is worth looking at a bit more closely in that it embodies some deeper trends that will most likely continue to get noisier as the year progresses.
One is the self-reinforcing impact of crypto price movements. Increasing crypto prices lead to increasing revenue at market-infrastructure providers, which leads to more investment, which develops better on-ramps, which leads to more investors coming into the market, which leads to increasing crypto prices. And so on.
This is evident in the amount raised. For context, Revolut’s Series B was roughly one-third the size. What’s more, Bitpanda’s raise came just six months after a $52 million Series A, when the average time between rounds is 18 months.
Bitpanda has been profitable for four years, according to CEO Eric Demuth, so it doesn’t really need the funds. This raise highlights a notable ambition: “to become ‘the’ investment platform for all of Europe.”
But wait, Europe has a slow and fragmented regulatory approach to finance and innovation, right? It doesn’t even yet have full capital markets union, so how can there be a pan-European crypto investment platform?
This is the second intriguing development highlighted in the Bitpanda funding round: upcoming European legislation that aims to create a unified approach to crypto industry oversight. This is potentially a very big deal.
Published in September 2020, the European Union’s “Markets in Crypto-Assets Regulation” (MiCA) aims to implement clear-cut rules and long-term legal certainty in the regulation of crypto assets. As usual in the European Union, however, clear-cut rules are usually anything but, as each member state has some leeway in the interpretation and implementation. And MiCA’s text is not yet finalized.
There does seem to be momentum, however, and not just because of the intensifying interest from all types of investors. Just this week the European Securities and Markets Authority issued a reminder about crypto asset risk. The momentum is also propelled by concern over the threat that privately issued cryptocurrencies could pose to financial stability. MiCA would also regulate stablecoins.
MiCA will bring a unified policy to crypto asset services, clarifying the regulatory status of crypto assets and their market-infrastructure providers. What’s more, it will enable crypto services in one member country to legally operate in any other.
And crypto asset service providers will be subject to requirements regarding capital needs, insurance coverage and more. This will instill greater institutional confidence in service providers’ legality and financial soundness. Greater legal certainty around market development will attract both investors and builders, accelerating the emergence of regulated crypto services.
In terms of institutional investment, the U.S. will continue to dominate the global financial stage. It has the world’s largest capital market and the largest funds. But Europe has so far shown itself to be more forward-thinking about the eventual fusion of traditional and crypto markets. A handful of stock exchanges list crypto-backed products. Some are developing entire token ecosystems. Two European crypto asset managers are now listed companies. Traditional banks are offering crypto trading and custody.
What’s more, Bitpanda’s sights appear to be on more than just being the biggest crypto exchange in Europe. Demuth told TechCrunch this week that the company was “shifting to become a pan-investment platform, not just a crypto broker.”
Its Mifid II license gives it scope to eventually trade other types of assets. According to reports, the company will add fractional trading of traditional shares in April. And, given their new war chest, it’s unlikely the expansion of offerings will stop there.
Given the investment and regulatory interest in helping platforms like Bitpanda achieve those goals, it could be that Europe is where the merging of traditional and crypto finance takes shape first.
But whether the U.S. or Europe takes the lead in crypto market progress over the next few years really doesn’t matter in the grand scheme of things. What matters is that the progress is accelerating and becoming almost tangible. It’s morphing from vague futuristic ideas to real rules guiding real platforms that offer real products to a changing market. And progress in one hemisphere will support development in the other.
It’s becoming increasingly apparent that the rapid change in crypto market infrastructure that we’ve seen over the past year was just the warm-up.
This week, CNBC’s report that Morgan Stanley was allowing its financial advisers to put client funds into bitcoin sent ripples through the wealth management industry.
The firm, one of the largest asset managers in the world with over $4 trillion AUM, will give clients access to three bitcoin (BTC, +0.46%) funds via its platform. Two of these funds are managed by Galaxy Digital, and the third is overseen by FS Investments and NYDIG.
For now, the bitcoin funds are only available to clients with accounts that have been active for at least six months and are worth over $2 million ($5 million for investment firms), and there is a limit of 2.5% of a client’s net worth.
Nevertheless, the move is significant for the whole market for the signals it sends:
Clients are demanding bitcoin exposure. We knew this anyway, but here’s more proof.
Bitcoin is now officially investment grade. Morgan Stanley’s acceptance of bitcoin’s liquidity, custody and market integrity is a loud stamp of approval. This signals to financial advisers of all types that this market is worth thinking about with an open mind.
These signals won’t just reach investors. They will also reach other investment houses and financial advisers, who will probably scramble to offer similar services rather than be seen as overly conservative in a low-yield market that is pushing investors further along the risk curve.
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