Cryptocurrency companies have ploughed ahead with their international growth plans this year despite a slump in trading volumes and prices for bitcoin and other digital assets.
Some 98 foreign direct investment (FDI) projects were announced in crypto-related activities in the first half of 2022, an increase of 145% from the same period last year, according to greenfield investment tracker fDi Markets.
Project numbers were higher in the first six months of 2022 than any previous full-year period since 2016, when the database began recording crypto projects. An estimated $3.7bn has been pledged to crypto FDI projects so far in 2022 — more than double the figure recorded for the whole of 2021.
The overwhelming majority of the announced FDI projects in 2022 involved companies that provide crypto services, such as exchanges or platforms, setting up a physical presence in a foreign country. Crypto exchanges typically earn money through commissions and transaction fees on trades of assets such as digital and fiat currencies. This gives them an interest to enter new markets in a bid to acquire new users and increase the number of trades undertaken on their platform.
Hong Kong-based Binance, the world’s largest crypto asset exchange, announced in May it would open an office in Italy after receiving regulatory approval to sell crypto products in the country. This came a month after Binance was granted registration as a digital asset provider in France, where it also plans to expand its team.
These physical expansions came just before a sharp sell-off in digital asset markets. In mid June 2022, the price of bitcoin dipped below $16,000, about 70% below its peak of more than $67,000 in November 2021. This followed the collapse of luna, an algorithmic ‘stable coin’ meant to track the value of the US dollar, which lost nearly $45bn in value over three days in May 2022 and sent shockwaves through the crypto sphere.
Agostino Capponi, an associate professor at Columbia University who has researched blockchain technology and crypto markets, told fDi that luna had a “large contagion effect” throughout the digital asset industry.
“Many other crypto tokens lost value right after the collapse of Terra LUNA. It was systemic in the crypto market,” he said. Mr Capponi believes that there could be a “clean up” of crypto assets that are not based on true fundamental drivers of value during this current downturn, with their prices falling to very low levels as soon as the end of 2022.
“A very large number of projects in crypto do not carry any value,” he said. “There has been a large dividend injected into the market in the past two years, as there has been crypto-enthusiastic type of behaviour without understanding of what you are really getting.”
Mining for opportunities
Despite the recent market downturn and risks associated with digital assets, venture capitalists have bet a total $17.5bn on crypto companies in the first half of 2022, according to PitchBook data. Investors have poured funds into decentralised finance (DeFi) projects, which aim to create an alternative financial system based on blockchain without a centralised authority, such as a bank or stock exchange. Amid this buoyant funding environment, many companies have set out significant expansion plans.
Bitzero Blockchain, a Norway-based crypto mining company backed by strategic investor and Shark Tank star Kevin O’Leary, announced in June that it will build a hub serving North America in the US state of North Dakota.
Bitzero expects to invest up to $500m to redevelop a Cold-war era military complex site, known locally as ‘The Pyramid’, in the largest greenfield crypto-related FDI project ever tracked by fDi Markets. It will include 200 megawatts of data centres, a graphene battery assembly and distribution hub.
Bitcoin mining has expanded rapidly in the US recently, particularly since a regulatory crackdown in China led many companies to relocate their operations. In January 2022, the US’s hash rate — the speed at which a cryptocurrency miner works to develop a coin — rose to 37.8% of the global hash rate, up from 10.5% a year earlier, according to the Cambridge Bitcoin Electricity Consumption Index.
Between January and June 2022, the US attracted 11 crypto-related FDI projects, ranking second globally behind the UAE’s 15 projects. Brazil ranked third with seven projects, followed by the UK (five), Lithuania (five) and Singapore (four).