SharesPost, a leading provider of late-stage private company liquidity solutions and private capital markets research, has released a research report (titled “Investment Strategies for Blockchain: A $2.5 Trillion Opportunity?”) explaining why it believes the value of the companies in the blockchain space could exceed $2.5 trillion over the next ten years (i.e. 15X potential growth over the current estimated value) and identifying four ways in which investors can participate in this market.
In this article, we highlight some key sections of this 20-page report.
The $2.5 Trillion Value Creation Opportunity
Although people usually associate blockchain technology with cryptocurrencies, this technology has the potential to disrupt several industries, with a value creation potential of almost $3 trillion across 20 verticals:
- Blockchain infrastructure (crypto mining, crypto exchanges, crypto wallets)
- Payments (lower fees, greater transparency and accuracy, faster processing)
- Identity management (secure storage of login credentials; fraud prevention)
- Asset management IT (e.g. trade order generation and fulfillment)
- Securities Trading (e.g. custody and securities’ servicing)
- KYC/AML management (e.g. smart contracts for automatic customer verification)
- Cloud computing (e.g. using surplus computing power for distributed systems)
- Insurance technology (e.g. using smart contracts for automating claims processing)
- Online storage (e.g. for secure, encrypted, and redundant storage)
- Cyber security (e.g. protecting identities with keys published on the blockchain)
- Real estate (e.g. for secure storage of title ownership records and for escrow management)
- Supply chain management (e.g. for real-time traceability throughout the network)
- Digital media (e.g. for rights management)
- Social media (e.g. for individual control over personal information and content)
- E-commerce (e.g. for facilitating peer-to-peer sales)
- Online marketing (e.g. for enhanced data safety and privacy control)
- Gaming (e.g. to have a decentralized compensation model)
- IoT / device management (e.g. for transparent data tracking and analysis)
- Healthcare IT (e.g. for transparent billing management)
- Government IT (e.g. for cutting out inefficiencies and intermediaries)
Investing in Cryptocurrencies
- “Buying cryptocurrencies is the easiest way for consumers and investors to access Blockchain technology.”
- “Investors can acquire cryptocurrencies in one of two ways: through a computer (mining) or an exchange (trading).”
- “The top 20 currencies capture over 95 percent of overall market cap.”
- “Although a large number of cryptocurrencies trade on the market, most are unknown and lack liquidity.”
- “Over 200 cryptocurrency exchanges, most of them located outside the United States, host daily trading volume exceeding $18 billion as of April 2018.”
- “BitMEX drives the highest volume with over $3.3 billion in daily volume, followed by Binance and OKEx with $2.4 billion and $1.8 billion respectively.”
Investing in Public Market Blockchain Proxies
- “Investing in publicly traded companies working with cryptocurrencies and Blockchain technology offers people a less risky way to access digital assets.”
- A few examples of technology and financial services companies that have taken the lead in Blockchain application development: IBM (highest number of Blockchain-related patents filed); Amazon (e.g. provides Blockchain Templates for developers through AWS); Intel (e.g. builds chips used in executing blockchain transactions); AMD and NVIDIA (build graphics cards that can be used for crypto mining); and Hitachi (has developed a blockchain platform for supplychain using technology from open-source Hyperledger consortium).
- Over the next 1-2 years, regulators expected to “sanction companies that have falsely used the Blockchain name to boost valuations.”
Investing in Tokens via ICOs
- “Blockchain startups, many of them less than a year old, raised a total of over $6 billion through 500 ICOs in 2017 compared to a little less than $1 billion from traditional VC funding.”
- “… unlike traditional capital raising, anyone with cryptocurrency such as Bitcoin or Ethereum can participate in an ICO.”
- “We expect to see a high volatility in the token valuations in the secondary market over the next couple of years as governments work to develop better ways to evaluate token based fund-raising.”
- “Both Blockchain experts and investors believe token companies will either shut down or reissue their digital assets as security tokens to meet regulations.”
- “Over 680 crypto tokens currently populate the global marketplace with a total value exceeding $46 billion.”
- “The top 100 tokens seen below represent 85 percent of the overall token market cap.”
- “Most token startups conducted their ICOs outside the United States, which employs stricter regulations. Experts believe regulators will consider most of the ICOs conducted in America as illegal.”
- “The top 20 account for over 93 percent of the overall daily volume across all exchanges.”
Investing in Blockchain Private Growth Companies
- “Accredited investors can access Blockchain startups through the venture capital funds backing the companies or through the secondary market.”
- “Investments into Blockchain companies have grown significantly over the past 18 months.”
- “The first wave of companies focused primarily on Blockchain infrastructure and payments.”
- “Among Blockchain startups in the United States, Circle and Coinbase have raised the most money followed by Ripple, Bitpay and Chain.com.”
- “The top 5 Blockchain companies raised over half a billion dollars from major investors like Union Square Ventures, Blockchain Capital, Goldman Sachs, Digital Currency Group, Andressen Horowitz and Google Ventures.”
You can download a fully copy of the “Investment Strategies for Blockchain: A $2.5 Trillion Opportunity?” report from the SharesPost website (once you have registered).
