After a landmark year for digital assets we have announced our investment in leading crypto exchange and financial services platform Gemini. Already established as a key player in the global crypto market, we believe Gemini is exceptionally well positioned to achieve further scale as the ecosystem continues to mature. Below we revisit Augmentum’s thesis for the crypto space and outline our rationale for choosing to back Gemini in their first ever private funding round.
Crypto Market Update & Thesis
The total market cap of cryptocurrencies crossed $3tn for the first time on the 8th of November¹, a monumental milestone to reach 13 years on from the publication of the original Bitcoin whitepaper. At the time of writing — two weeks later — total market cap sits around $2.7tn. In combination, these figures speak to the continued momentum in crypto — where inflows of institutional capital have driven year-on-year growth of ~450% — and also illustrate the volatility which remains a familiar feature of what is still an emerging market. We hold conviction that significant opportunity exists for companies building infrastructure that will support the maturation of the crypto market in the years ahead.
Total Cryptocurrency Market Cap, Jan-19-Nov-21
Along with market cap reaching new heights, 2021 saw a number of landmark events and developments which chart progress towards maturity, including greater engagement from regulators around the world. Looking forward, It is clear that regulatory engagement with crypto will only continue to grow.
- SEC approval and launch of the first US Bitcoin futures ETF²
- Mastercard announce a partnership with Bakkt to expand Mastercard’s suite of ‘crypto-as-a-service’ products³
- The number of significant corporations holding Bitcoin on balance sheet as an inflation hedge increases to include MicroStrategy, Tesla, Square and MetroMile⁴
- Crypto users more than doubled in 2021H1 to 221m users with growth distributed across Bitcoin, Ethereum and alternative coins. Survey results suggest 14–17% of US adults own Bitcoin⁵
- Coinbase complete a direct listing on the Nasdaq⁶
- More Salvadorans have Bitcoin wallets than traditional bank accounts following approval of Bitcoin as legal tender alongside USD⁷
- Industry commentators and activist groups call out the climate impact of blockchains. Industry body Climate Accord pledge to transition all blockchains to move to 100% renewable energy sources by 2030⁸
Exchanges sit at the heart of the cryptocurrency market, serving as the primary gateway for institutions and individuals to onboard into the ecosystem. They often also remain the key hub for ongoing activity, with broad offerings encompassing core services such as custody, clearing and yield opportunities. Around 92% of spot exchange volume is currently traded on centralised crypto exchanges⁹ with the top venues offering highly secure, regulated environments for institutional and retail traders.
As demand for institutional services has increased in the market, and crypto use cases have broadened into new areas such as decentralised finance (DeFi) and non-fungible tokens (NFTs), leading crypto exchanges have extended their offerings. The leading players have proven an ability to leverage their experience, scale and position at the heart of the crypto ecosystem to mature into full service financial services platforms.
We believe these exchange platforms will continue to play a central role in the market with advantages over single-service providers from scale and the convenience of end-to-end product offerings. And, as we see greater engagement from regulators in the years to come, we believe that platforms who have developed strong foundations in regulation, security and compliance will be best positioned to attract new inflows of capital.
Building on these beliefs we are delighted to announce our participation in the first private funding round of leading crypto exchange Gemini. Gemini joins our existing digital asset infrastructure investments in ParaFi (Jan-21) and Tesseract (Jun-21).
Founded in 2014 by digital economy pioneers Cameron and Tyler Winklevoss, Gemini is a leading cryptocurrency exchange and digital asset services platform with a user base of institutional and retail investors in 50 markets. From the outset, Gemini has taken a regulation first approach to growth and holds an unmatched number of operating licences and security standards including New York Trust Company Status, FCA Crypto Asset Firm licence, ISO270001 certification and both SOC 1 Type 2 and SOC 2 Type 2 standards. As a result Gemini is one of the most highly trusted brands and platforms in the crypto ecosystem.
In line with our thesis, Gemini’s regulatory position and excellent security and compliance record are proving strong foundations for growth with institutions entering crypto. Gemini’s institutional offering includes Gemini Fund Solutions (GFS), a tailored set of products for fund issuers operating crypto ETFs and other fund vehicles. Today, GFS supports Toronto Stock Exchange (TSX) traded crypto ETFs and listed funds managed by 3iQ, CI Global Asset Management, Galaxy and Ninepoint partners¹⁰. Gemini has also been selected by the Commonwealth Bank of Australia to power a cryptocurrency proposition rolling out to 6.5m customers¹¹.
We also see huge potential in Gemini’s multi-product retail offering which — alongside trade, earn and credit card products — evolved to include access to Non-fungible tokens (NFTs) through the 2019 acquisition of leading NFT marketplace Nifty Gateway. Our view is that NFTs will introduce more of the mass market to crypto by connecting the financial innovation of blockchains with global audiences in art, gaming, and music. As with the broader crypto market, we believe there to be significant opportunities in building financial infrastructure for the NFT market. We have partnered with leading NFT market infrastructure fund Sfermion to gain additional exposure to early-stage investment opportunities in this part of the ecosystem.
Augmentum has invested in Gemini’s first private fundraise alongside our partners at ParaFi Capital. Other investors in the round include Morgan Creek Digital, 10T, Newflow Partners, Marcy Venture Partners and the Commonwealth Bank of Australia. As the sole European institutional investor our team will work particularly closely with Gemini’s European operations to support further expansion in the UK and European markets from Gemini’s bases in the UK and Ireland.
Learn more about investing in fintech with Augmentum here.
⁵ https://blog.crypto.com/global-crypto-users-over-200-million/ , Gemini/NYDIG/Nasdaq
¹⁰ https://www.gemini.com/blog/gemini-fund-solutions-a-unified-offering-for-fund-managers , https://cointelegraph.com/news/gemini-launches-etf-and-fund-manager-focused-custody-clearing-and-trade-service
This financial promotion is issued by Augmentum Fintech Management Limited which is authorised and regulated by the Financial Conduct Authority under Firm Reference Number: 811734. Augmentum Fintech Management Limited is appointed as manager to Augmentum Fintech plc. This financial promotion is for information purposes only and nothing contained in this financial promotion constitutes investment advice. This financial promotion is intended for professional investors and for retail investors who have sufficient knowledge and experience of UK listed investment trust companies. If you as a retail investor are uncertain whether an investment is suitable for you, you should seek advice from a regulated financial adviser. The value of investments, and any income from them, can fall as well as rise and you may not get back the amount invested. Reference to “Augmentum” or “Augmentum Fintech” refers to “Augmentum Fintech Management Limited” unless otherwise stated. Reference to the “Company” refers to Augmentum Fintech plc. Reference to “we”, “our” and “The Augmentum Team” refers to employees, consultants or advisors of/to “Augmentum Fintech Management Limited”.