A recent report by Deloitte shows that institutional support for blockchain technologies is at an all-time high. Combined with the statistics that almost $900 million of VC funds were invested in blockchain projects in the third quarter of 2020, and almost 80% of the projects that overcame a hard cap managed to do so in the second half of 2020, the positive blockchain investment sentiment points to great things in 2021.
So which types of projects will attract greater investment in 2021? Many solutions that are in development or are currently on the market aim to make blockchain use cases a viable reality, while addressing some of the issues (like regulation and security) that have made people hesitant to enter the market or rely on blockchain technology as a core pillar of their business. In this post, we will take a look at the crypto market and top blockchain startups, the reasons to invest in blockchain and invest in crypto, and some promising projects for 2021.
Blockchain investors and the crypto market — an overview
Continuously expanding, one of the easiest ways to view the blockchain and crypto market is through the different groups of investors. While this is not an exhaustive list, the following personas can give us an idea of who is investing and where they are putting their funds.
#1: Companies using blockchain — The Deloitte study we referred to above provides the backdrop to at least part of the current blockchain market situation. Through interviews with senior executives and practitioners from across 14 countries, it mentions how blockchain technology has gone from being a technological experiment to one that has gained a foothold in global commerce, and now seen as a top-five strategic priority for businesses. 83% of respondents surveyed believed that they would be at a competitive disadvantage were they not to adopt blockchain technologies as part of their companies’ operations. Incorporating a solution into their businesses means they are ready to spend serious money across a longer period of time, to ensure the best possible outcome.
#2: Companies using cryptocurrencies — Next, there are the institutions such as Paypal and Square that are buying up cryptocurrencies, chiefly Bitcoin, to provide greater financial offerings. They are not necessarily utilizing blockchain technology, but believe in its application and are putting further funds into the ecosystem’s development through popular blockchain startups. While claims that they want to help the sector grow may be partly true, there is no doubt an element of these companies wanting to make their investments more secure.
#3: Speculators — This group is comprised of individuals or hedge funds that invest in cryptocurrencies and blockchain solely to make a profit. They see crypto prices skyrocket and along with institutional backing, feel comfortable enough to dive in with greater investment. Encouraging crypto investors to move beyond just cryptocurrencies, crypto.com has created a $200 investment fund for promising blockchain startups. Entrepreneurs will now have access to 10 million users from which they can attract funds and provide exciting new products. We will undoubtedly see more of this in the future.
#4: Governments — The decentralized nature of blockchain means that suspicion is aroused whenever a government shows support. China, for example, has been developing the technology to create a nation-wide blockchain infrastructure network, but without the freedom that blockchain was originally designed for. The European Union, however, has given grants to blockchain projects they believe to be for the public good, such as European-wide initiatives to protect public health data (My Health — My Data).
#5: The Unexpected — While many people think of the above four categories of investors, there is a significant investment group that is often overlooked. People from politically or economically volatile countries are increasingly putting their money into cryptocurrencies to counter inflation and/or keep their funds at arm’s length from central authorities. Nigerians are turning to stablecoins, while Libya, Ukraine, and Palestine rank in the top 5 countries in the world for cryptocurrency searches.
No matter the motive, wider investment means greater overall health for the industry. What’s more, knowing which investment group you are part of means you can better identify investment trends and do more targeted research in order to meet your specific goals.
Why people are investing in blockchain technology
While many turn to Google to ask why they should invest in blockchain technology, there are no easy answers. As outlined above, there are so many reasons why a person, group, or company might want to invest, that’s it best to look at your own intentions. From there, you can decide whether it is right for you, and narrow down investment areas that align with your goals.
As INC4 is a business built on developing blockchain technology, it might not surprise you to know that we believe blockchain investment is worthwhile; however, we have formed this opinion by working with companies of various sizes around the globe and seeing exactly how blockchain can benefit so many industries. With Decentralized Finance (DeFi) applications, oracles for providing real-time data to fulfill smart contracts, and the tokenization of assets, blockchain use cases are no longer theoretical, but there for all to inspect.
Whether it’s legacy financial institutions adopting cryptocurrencies or companies making it a part of their business operations, blockchain is part of the central fabric of our interconnected world, and this has only been highlighted by the Covid-19 pandemic.
Most promising blockchain projects in 2021
At the beginning of this post, we talked about the blockchain projects addressing specific problems that are barriers to investment. These feature prominently in some of the upcoming projects that are gaining attention in 2021. Others are capitalizing on DeFi trends, which are increasingly being used to conduct transparent and secure financial operations on the blockchain. While a list of promising startups is always going to be subjective, we have mentioned a few companies that are representative of what’s on offer.
- Flow blockchain, built by Dapper Labs, was born in 2017, after their successful creation, CryptoKitties, brought the Ethereum blockchain to a halt. Flow is purpose-built for NFTs and large-scale crypto games. With the success of another of Dapper Labs’ creations, NBA Top Shot, partnerships with UFC and the Dr. Seuss’ estate have followed, with the collectibles to be housed on Flow’s blockchain.
- With online data constantly expanding, there is of course a need to efficiently manage it. This is where Filecoin (FIL) comes into play. Built on the same underlying stack as InterPlanetary File System (IPFS), Filecoin is a decentralized network that allows people to rent storage, as you would in a centralized cloud, but also rent out storage space on the network. With concerns over privacy, this system presents a way to manage demand for storage in an efficient way, and also take data out of the hands of centralized behemoths such as Amazon.
- Uniswap, is a leading exchange in the DeFi world, offering an automated liquidity protocol and giving users control over their private keys, meaning greater security for the trading of ERC-20 tokens. Uniswap v3 is set for release on May 5, with new features promising up to 4000x capital efficiency relative to Uniswap v2, meaning low-slippage trade execution and increased exposure to preferred assets.
- ETH2.0 is probably the most high-profile project, with a roadmap that began in 2020 and is estimated to be 100% complete sometime in 2022. Despite the current incarnation of Ethereum being the dominant blockchain for DeFi projects, there are familiar complaints of slow transactions, lack of scalability, high costs at peak times, and wild energy consumption. ETH2.0 is moving to a Proof-of-Stake consensus model, which is much more energy-efficient, and introducing shard chains to greatly improve the capacity of the network and improve security.
- Despite a recent dip, the DeFi sphere continues to develop at pace. One of the pioneering projects, Yearn.Finance deserves some credit for this, with its founder, Andre Cronje being awarded defiprime’s DeFi person of the year. Yearn.Finance made a hub for all the staking pools in the DeFi space, saving users time and resources, and automated yield farming with its vaults. Development continues with ycredit (still in beta) and yInsure, making the DeFi space more accessible and safer.
- blockfi is not the first, and certainly not the last startup to capitalize on the movement of crypto assets. It allows users to borrow, trade, and earn more interest than they would with savings accounts in traditional financial institutions.
- LINE blockchain is one of the projects supported by Hashed, a South Korean blockchain investment group. The LINE blockchain aims to make the development of blockchains easy and efficient. There have already been decentralized social media applications, games incorporating NFTs, and video streaming services created using LINE’s platform.
As you can see, there are blockchain products for so many industries, with these solutions demonstrating just why there is so much excitement from investors big and small.
Blockchain investment: what to expect in 2021?
In addition to all the information above, what else can we expect from 2021? While unfortunately we aren’t clairvoyants, we do have a couple of ideas for what to keep an eye on:
- Greater dollar value investment in both crypto and blockchain projects — Research by CoinShares points to a record investment of $4.2 billion into cryptocurrency funds, up 7.7% from the previous record ($3.9 billion in Q4 2020). Aside from cryptocurrencies, there should continue to be greater interest in blockchain startups. As a recent article from Forbes points out, institutional investors are often limited to BTC and ETH when going through brokers, so are looking further afield to promising blockchain startups.
- Institutional interest beyond Bitcoin — Tieing into the point above, Bitcoin is still going strong, but there is interest outside of this cryptocurrency, as seen with the investor-led surge in Ethereum. Diversifying portfolios will no doubt lead to the exploration of other lesser-known cryptocurrencies.
- Possible Bitcoin scarcity — According to a recent CoinDesk article based on glassnode’s research, institutional investment in Bitcoin is outpacing mining, meaning there are only about 4 million Bitcoin still in circulation. With more people holding their coins in anticipation of a price rise, there could be Bitcoin scarcity on the horizon.
- Eth 2.0 boosting the DeFi ecosystem — With the much-anticipated rollout of Ethereum 2.0, the lockup of an expected 500,000 Ether in the system is anticipated to spur DeFi innovation, with new solutions created to unlock the value of these locked funds, all without jeopardizing the Ethereum upgrade.
The final word
This has been a whistle-stop tour of blockchain investment, and we encourage you to do your own research, as there are so many blockchain possibilities out there. If you’re looking to build your own blockchain, or need a dedicated team to augment your existing project, get in touch with INC4. We have been developing blockchain products before it was fashionable, and have the experience to boost any endeavor. Check out our fundraising report for more information and further blockchain insights!