Crypto Deals to Focus on Financial Market Modernization as Investments Slow

In the second half of 2022, crypto and blockchain investors are expected to become more discerning with their investments — focusing more on profitability and cash flow when evaluating opportunities, according to KPMG’s Pulse of Fintech report published this week.

“While investment in cryptocurrencies is expected to slowdown further, there will likely be a continued focus on the use of blockchain in financial market modernization,” the tax and audit firm said.

This means increased interest in solutions related to compliance and crypto transaction traceability, as well as interest in stablecoins from corporates looking to tap operational advantages of crypto, such as lower costs, increased efficiency, visibility, liquidity, and ease of use.

Investors are also expected to pay more attention to “areas adjacent to traditional financial services offerings, such as open data and decentralized finance,” KPMG said, noting that the B2B space will be a “high priority” for investors.

At the same time, KPMG said it expects a slowdown in crypto interest and investment, particularly retail firms offering coins, tokens and NFTs.

Deal flow slows

Global investment activity in blockchain and crypto companies have fallen from their 2021 highs – reaching US$14.2 billion in the first half of 2022, according to KPMG data.

The report cited the unexpected Russia-Ukraine conflict, rising inflation, and challenges experienced by the Terra crypto ecosystem as reasons behind the collapse of the crypto space. But despite the chilling macro backdrop, investment activity is still higher than previous years.

“This highlights the growing maturity of the space and the breadth of technologies and solutions attracting investment,” KPMG said.

The firm noted that the changing nature of investors have shifted the crypto investment risk profile –institutional and corporate investors now account for a much larger share of investment than retail participants.

“Looking ahead, we are going to see some cryptos cutting their valuations and working to raise money because it’s their only option. They’d rather raise money and be capitalized at a lower valuation rather than not doing so and taking the risk of dying out. Of course, some cryptos will die out — particularly those that don’t have clear and strong value propositions. That could actually be quite healthy from an ecosystem point of view,” Alexandre Stachtchenko, director blockchain and crypto assets, KPMG France, said.