A preview of research on fintech adoption of cryptocurrency

This is a small preview - you can find a full report with more detailed analysis and commentary here.

Takeaway: Fintech crypto bets have had a clear, attractive return on investment

In the early days, Bitcoin and cryptocurrency were a fringe element of financial technology.

Yet, Bitcoin slowly built a base of followers and believers - sometimes surging forward in great leaps during periods of speculation. The volatility and obscure nature of the project initially earned Bitcoin a cold reception from most respectable fintech companies of the day. Narratives that Bitcoin wasn't a real asset and a temporary bubble were all too common.

Despite this, some entrepreneurs defied the narrative and created crypto companies and products anyway. Today we count many of these companies among the ranks of tech unicorns.

A handful of the crypto unicorns in existence

It wasn't until 2017 that more mainstream fintechs would begin to make serious moves in the crypto space. In late 2017 there was large market rally in cryptocurrency, driving prices to new all-time highs. Like cycles before it, the rally brought large numbers of new retail users into the space.  

Fintechs saw their core millennial and Gen-Z demographic engaging with cryptocurrency on dedicated exchanges in huge volumes. In response, three fintech heavyweights - Cash App, Robinhood and Revolut - deployed their own exchange products into the market in the first quarter of 2018 (Cash App starting a pilot as early as Nov 2017).

The die was cast.

We have the benefit of hindsight looking at these moves today. Did the bets pay off?

By all measurable factors, the answer is "Yes". Big time.

These early crypto products delivered ROIs both in the moment and in ways that are still positively impacting these companies today. By analyzing the data about these companies - app downloads, valuations and revenue - we're able to glimpse the impact made by cryptocurrency products. Here we'll highlight three points:

Robinhood Crypto fueled all-time-high app downloads

Robinhood had 2M+ downloads in the quarter they released Robinhood Crypto (1Q18), their highest ever.

Original chart + data from Apptopia (Adam Blacker blog post).

Cash App Bitcoin Sales have grown 10x since launch

Square's Cash App's reported Bitcoin Sales (volume + fees) for 1Q20 increased to $306 million - 367% over 1Q19. Cash App's Bitcoin product has grown ~10x since it's launch in 1Q18. All indications are that 2Q20 should be another strong quarter.

Crypto has helped drive industry-leading fintech valuations

Quantifying individual business lines of private companies can be difficult. However, we can analyze publicly available valuations, app download growth and statements from leaders within the company to help understand the impact crypto has had.  

Robinhood and Revolut provide two good examples. In both cases there was a large step up in valuation after crypto was offered (1Q18 for both). In both cases the CEOs have been open about the relationship between cryptocurrency and growth of their platforms.

Was the relationship between crypto products and Robinhood's or Revolut's high valuation causation or correlation? Did crypto really cause higher valuations? These companies already had accelerating growth in other fintech products prior to offering cryptocurrency.

It doesn't really matter. In either case, the signal is clear: the top fintech companies have successful crypto products. Yet, we think the data shows a causal relationship: crypto products directly or indirectly boosted valuations of leading fintechs.  

Some of these is not like the other. Dark blue = had crypto product at time of Series D.

Some of the compelling evidence includes:

  • App download data around release of crypto products shows accelerated growth (e.g. all-time high app downloads in 1Q18 for Robinhood), a key driver of valuation
  • Higher valuations of fintechs offering crypto. Robinhood and Revolut had higher Series D valuations ($5.6B and $5.5B, respectively) than their non-crypto peers at the same round level: N26 ($2.7B), Chime ($1.5B), SoFi ($1.3B - later offered a crypto product) and Transferwise ($1.1B)
  • Pure-play cryptocurrency exchanges have acquired strong valuations, including Coinbase, which was last valued at $8B in rumored to be doing an IPO that would be closer to 2x that valuation. It makes sense that fintechs sharing in the same crypto addressable market will get some of the valuation credit

Takeaway: COVID-19 was a positive catalyst for Bitcoin

In response to the COVID-19 pandemic and subsequent global economic crisis, we saw swift action by central banks to implement aggressive fiscal and monetary policies.

Nowhere was this reaction as strong as in the United States, where an unprecedented amount of Federal Reserve intervention in markets culminated in the monetary base reaching all-time highs as a % of GDP:

Original chart from Ray Dalio. This modified version is from Lyn Alden

As an emerging bet against monetary inflation, Bitcoin was gifted the perfect macro catalyst. The narrative of Bitcoin as digital gold and as an option against the breakdown of the established financial order gained significant momentum. The sentiment was affirmed by notable, billionaire fund managers who publicly praised Bitcoin and disclosed their own holdings:

These factors combined, along with a bullish sentiment coming off the market lows, to enable Bitcoin (BTC) to outform both the S&P500 and Gold in the first half of 2020:

Want more insights on this topic? Check out our full report

You can find it here and includes:

  • Data on overall crypto market size and drivers of adoption
  • Myths vs realities of current market environment
  • More analysis on COVID-19 and Bitcoin
  • 2020 / 2021 product trends and predictions
  • Profiling of every fintech currently offering crypto, along with data and insights

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