Back in August 2021, we highlighted how 55% of the top 100 banks (by assets under management, AUM) invested in companies operating in the blockchain and/or digital currency spaces, either directly or through subsidiaries.
Since then, the crypto blockchain market has experienced considerable levels of volatility, prompting us to revisit the activity of the banks we tracked and see what they’ve been investing in since.
Around 23 banks have made at least one investment in blockchain/crypto-linked entities in the cycle from August 2021 to May 2022 that we cover in this edition of our updated analysis. Of these transactions we tracked down, 6 involved new investors with first-time deals in the ecosystem, whereas the rest featured returning investors such as Morgan Stanley, BNY Mellon, and Goldman Sachs.
In this current cycle, the most active investors based on the number of investments in blockchain companies are KB Financial Group (8), United Overseas Bank (7), Citigroup (6), Goldman Sachs (5), and Commonwealth Bank of Australia (4). Please note the total deals take into account any investments made by the above organizations as well as subsidiaries and corporate venture arm.
In most cases, we cannot determine how much money these banks have invested, as they participate in funding rounds with multiple or many other investors.
As a proxy of this, we can look at the total funding amounts of the rounds they participated in. Based on this, the investors active in the biggest funding rounds are Morgan Stanley ($1,100M in 2 rounds), Goldman Sachs ($698M in 5 rounds), BNY Mellon ($690M in 3 rounds), Commonwealth Bank of Australia ($421M in 4 rounds), and Citigroup ($215M in 6 rounds).
As of May 2022, a total of 61 banks (55 in previous update + 6 new investors in the current cycle) now have invested at least once in this space. Therefore, the proportion of banks that stay invested in the ecosystem and the gradual entry of new investors indicate a stable outlook and is expected to drive more investment participation from banks in the near future.
Where banks are investing the most:
Custody Solutions and Custody Tech Providers
Custody solutions and technology providers, as expected, maintain their popularity among the top banks, having raised some of the largest funding rounds since August 2021. These deals include: NYDIG ($1B), Fireblocks ($550M), Gemini ($400M), and Anchorage Digital ($350M).
This came as no surprise as the market cap value of cryptocurrencies grew to an all-time high in Nov 2021, resulting in more demand and amount of digital assets held by custody providers. Since the beginning of 2019, assets under custody (AuC) have grown an impressive ~600%.
In fact, custody and technology solution providers raised mega-rounds ($100M & up) from banks which included:
- Morgan Stanely – made follow-on investment in NYDIG’s $1B Growth Equity round
- BNY Mellon – follow-on investment in Fireblock’s $550M Series E
- Commonwealth Bank of Australia – participated in Gemini’s $400M Series A
- GS Growth – invested in Anchorage Digital’s $350M Series C
See more: Here’s why Cardano is the next Bitcoin
Morgan Stanley’s investment in a blockchain infrastructure and services company, Figment, highlights the significance of protocol staking, middleware, and application-level solutions in the Web3 ecosystem. Figment is focused on boosting the Web3 ecosystem by increasing adoption of Proof of Stake (PoS) blockchains (a consensus mechanism for crypto transactions and creation of new blocks).
Talos, another emerging digital asset and crypto trading infrastructure provider, has attracted attention from Wells Fargo Strategic Capital, BNY Mellon, and Citi Ventures. Talos has become particularly popular among banks due to its plans to expand support from centralized crypto trading to decentralized finance (DeFi) platforms.
Blockdaemon is another blockchain infrastructure company focused on node management and staking that has raised several rounds of funding from Citi Ventures, who participated in Series C and J.P. Morgan Chase and Goldman Sachs who invested in their Series B round.
Their presence and investment into this space highlights their focus on the continued development of blockchain infrastructure tools and services necessary to support the growing crypto ecosystem.
Other areas on the radar of top banks
Overall, banks are investing in a variety of areas right from blockchain development platforms and marketplaces to market intelligence services and decentralized applications. Most of these investments are directed toward achieving an accelerated growth in user adoption, customer reach, technology innovation, and customer experience in the immediate future.
Marketplaces and asset management/tokenization
Regional marketplaces and exchanges are also generating investments from banks. In South Korea, KB Investment and Hana Ventures have made investments into blockchain-enabled marketplaces for spot asset investment such as Buysell Standards, also known as PIECE, which divide ownership of assets into pieces that multiple investors can and do buy jointly. KB Investment has also made multiple investments into Streami, the company behind crypto-exchange GOPAX.
Crédit Agricole Italia invested in the seed round of Italian start-up, BlockInvest, an asset tokenization firm that digitizes the process of issuing and selling real estate and bonds.#### Crypto data providers
Banks are also investing in blockchain/crypto-related information and insights’ providers to carefully navigate the ever-evolving risks and capitalize on emerging opportunities. For example, Coin Metrics (with the backing of Goldman Sachs and BNY Mellon) offers crypto-related market intelligence, network data, indexes, and network risk solutions, whereas Amberdata (with Citigroup as a participating investor), offers data and insights related to blockchain networks, DeFi, and crypto.
Blockchain security is another important area of interest for banks as the crypto sector is still vulnerable and exposed to frauds and hacks. Goldman Sachs invested in the $88M oversubscribed Series B3 financing round of CertiK, a security audit firm that monitors blockchain protocols and smart contracts. Through their technology they’re able to audit and mark projects safe for investors.
Banks are well on their way to lead crypto to mainstream adoption
While some banks are taking an active approach by investing in crypto companies, some are taking a wait and see strategy as current regulation prevents them from engaging in crypto as Brian Moynihan, CEO of Bank of America (BoA) recently shared in an interview at the World Economic Forum in Davos. That being said, it hasn’t prevented them from launching a cryptocurrency research division to support institutional interest and retail clients while developing IP around the technology. As of 2021, 8% of the total BoA’s granted patents were related to blockchain as the bank witnessed an 86% growth in this central patent category.
Nevertheless, these actions demonstrated by banks illustrate they no longer see crypto as a threat. Some banks have already started incorporating blockchain and crypto solutions in their traditional banking portfolio as an integrated or add-on option.
For example, Commonwealth Bank of Australia announced they plan to integrate Gemini’s crypto exchange and custody service into their mobile banking app, CommApp, via APIs.
U.S. Bank announced its partnership with NYDIG to provide Bitcoin custody services available to their institutional investment managers with private funds in the U.S. or Cayman Islands.
Once there’s more clarity around crypto regulations, it’ll only be a matter of time before more traditional financial institutions look to integrate crypto adoption and become accepted in the mainstream. Stay tuned.