How financial services giants invest in blockchain companies

Major financial services companies, from American Express to Goldman Sachs and Deloitte, have invested in bitcoin and blockchain startups, and they are expected to continue to do so in 2017.

(Financial services companies investing in blockchain startups)

An emerging group of strategic investors is playing an increasingly important role in creating a healthy funding market for industry startups. While quarterly deal volume fell to its lowest point since the fourth quarter of 2014, the fourth quarter of 2016 was characterized by the two largest funding deals being made by major financial services firms.

More specifically, distributed ledger developer Axoni has raised $18 million in Series A funding led by Wells Fargo, with investors also including JPMorgan Chase, Goldman Sachs, F-Prime Capital, and Thomson Reuters. As Axoni President Greg Schvey said:

“This massive investment in distributed ledger technology is a watershed moment for the industry. The combination of technology and business expertise from a wide range of companies is unparalleled and the benefits are clear.”

To illustrate the enthusiasm of financial services companies for investing in this industry, we analyzed CB Insights data and plotted the time of each company's first investment in this industry. As shown in the figure below, a large number of companies have made their first investment since August 2015.

However, it should be noted that consortiums are not included in the figure below. An example is R3 CEV, a consortium of banks and insurers, including Credit Suisse, JPMorgan Chase and Deutsche Bank, which jointly develops ledger solutions and standards that meet banking requirements. R3 has suffered some setbacks recently, with Goldman Sachs and Santander Bank leaving the consortium and turning to private blockchain investments.

Huobi Blockchain Research Center learned that financial services investors include insurance companies such as TransAmerica, New York Life and Sumitomo Mitsui Insurance Group (MSIG), payment giants such as Visa, Mastercard and American Express, and banks such as Mitsubishi UFJ Financial Group (MUFG), Citi, Santander and Canadian Imperial Bank of Commerce (CIBC).

As shown in the chart below, strategic investments in Bitcoin and blockchain startups over the past three years peaked in the fall of 2015 to the winter of 2016. In recent months, Deloitte, Miami International Holdings Group (MIAX), and Credit China have made their first blockchain investments, with Deloitte taking a stake in the aptly named blockchain settlement and payment platform SETL. In total, more than 50 financial services firms, or their strategic investment arms, have invested in Bitcoin or blockchain-specific startups since the beginning of 2014.

(Financial services companies investing in blockchain startups)

The following chart shows the investment landscape from November 9, 2015, highlighting the acceleration of financial services firms’ investments in blockchain and Bitcoin startups.

(Financial services companies investing in Bitcoin and blockchain startups)

It is worth noting that a relatively small number of startups have received the majority of financial services firms’ investments in the Bitcoin and blockchain space. For example, the seven companies listed in the table below—Circle Internet Financial, Coinbase, Ripple, BitFury Group, Blockstream, Digital Asset Holdings, and Chain—have received nearly $665 million in funding and are among the top ten most funded Bitcoin and blockchain companies. These companies have attracted a large number of financial services investors.

The table data comes from fintechranking.com