This section illustrates some examples and figures about the increasing rate of adoption of crypto by individuals, institutions and even nation states.
💡Read this section if you would like to see some insights on cryptocurrency adoption around the globe. Otherwise feel free to skip to the next section to learn about the fund's investment strategy
The crypto market is still in its infancy, but data shows that residents of more and more countries around the world are taking the dive into cryptocurrency or seeing existing adoption increase. Reasons for this increased adoption differ around the world — in emerging markets, many turn to cryptocurrency to preserve their savings in the face of currency devaluation, send and receive remittances, and carry out business transactions, while adoption in developed markets over the last year has been powered largely by institutional investment.
Nations States, Individuals and Institutions
On 7th September 2021, El Salvador was the first country to officially adopt Bitcoin as legal tender, making the cryptocurrency an accepted means of exchange for goods and services. More countries are anticipated to follow suit this year. Countries with high rates of inflation such as Argentina, Turkey, Brazil, and Mexico have all seen tremendous growth in the use of stable cryptocurrencies as a medium of exchange. Many states in America are racing to adopt crypto as well.
By the end of 2021, the global crypto market had about 295 million people holding cryptocurrency in some form, representing approximately 3.7% of the world’s population. Less than 5 million of these investors were active users interacting with DeFi protocols and other Web3 dapps (decentralized applications). Total Value Locked in DeFi grew from under $5 billion at the start of 2021 to more than $160 billion towards the end of the year. Total crypto transaction volume grew to $15.8 trillion in 2021, up 567% from 2020. There was over $30 billion in Venture Capital funding in 2021 and this figure is set to grow much higher in 2022.
We can see some of the biggest names in the finance world starting to jump at the opportunity. For example, BlackRock, the biggest asset management company in the world with approximately $9.5 trillion in assets under management has recently confirmed that it is stepping into the crypto market. Sequoia Capital, one of the top venture capital firms in the world, has been increasingly investing in crypto to a degree that 1 in 5 investments it made over the past 12 months were in crypto related projects. Andreessen Horowitz, another leading global Venture Capital Fund (early investor in Facebook, Instagram, Skype, Airbnb, Lyft, and many others) stepped into crypto in 2018, ramped up investments with a $2.2 billion crypto fund in early 2021, and is currently raising for a new $4.5 billion fund.
Visa, Mastercard, Amex, and Paypal have all introduced crypto features that allow their customers to invest and transact using crypto. These companies are also studying ways they can utilize blockchain technology to enhance the efficiencies of their current payment systems. For instance, in September 2021 Visa announced that it is working on building a layer 2 (network) for stablecoins and central bank digital currencies on top of the Ethereum blockchain.
Apple, Meta, Amazon, Walmart, Alphabet, Disney, Adidas, Nike, and many more blue chip companies have indicated their interest in the blockchain and are getting involved in one way or another.
Tesla, Microstrategy, Block, Lemonade, KPMG, and an increasing number of private and publicly listed companies have put Bitcoin on their balance sheets. KPMG stated that they have gone through this process so that they can guide their clients and prospective clients through the process of crypto asset treasury allocation and help them navigate the crypto asset world.
The above companies are platforms with the ability to onboard billions of people to Web3. As illustrated above, the inflow of new money into crypto has been growing and will continue to grow at exponential rates as more and more users and institutions jump on board.
Putting things in perspective
The total value of all financial assets in the world including all debt, equities, real estate, commodities including gold, and alternative assets is approximately $430 trillion. The global equities market alone dominates a large piece of the pie with $125 trillion as of January 2022. To put things in perspective, the total market cap of crypto is still under $1.7 trillion.
We strongly believe that the crypto world has the potential to grow more than 10x over the coming five years, which would put it at a total market cap of $15 to $20 trillion, or just less than 5% of the current value of all financial assets. In our opinion, this is a conservative approach, since we have not included the value of any inflow of activities and transactions from the traditional world to the new world, which would reduce the gap even further.
That said, with the improvements and revolutionary applications that the crypto world is bringing, we believe that the crypto world can disrupt all financial assets and will eat up market share across the board, enabling it to potentially take over much, much more. Whether it be in relation to debt (for example, with decentralized lending platforms), commodities (for example, with Bitcoin as an alternative to gold as a store of value), equities (for example, tokens representing ownership as an alternative to shares), currency (for example, where stable coins are offering new alternatives, where utility coins are being used as an alternative to money payments to offer a service or get paid for it), and/ or even in relation to real estate (for example, metaverse real estate acting as alternatives for virtual offices, social interactions etc.), the crypto world is here to change the world as we know it.
Crypto has also set its eyes on tokenizing debt. The total value of global debt currently stands at approximately $296 trillion. This includes government, household, corporate, and bank debt. One example that illustrates this is when Societe Generale issued on-chain tokenized bonds as collateral for a crypto loan in the form of a stablecoin called DAI from MakerDAO.