Crypto deals in Southeast Asia are up, but will the rally last?

Photo by Andre Francois on Unsplash

Interest in the cryptocurrency space has accelerated globally since the beginning of last year, amid the traction Bitcoin has gained in acceptance. Just this week, El Salvador became the first country to accept Bitcoin as legal tender.

Even as the prices of cryptocurrency remain volatile – with Bitcoin rallying from $5,300 in March last year to its peak of $63,000 this year – institutional investors have seemingly embraced cryptocurrencies – treating the coins as a diversification tool and validating its status as an emerging alternative asset class.

Buoyed by these developments, crypto-related startups in Southeast Asia are seeing increased user traction and deal activity.

The crypto hype has “definitely” helped his startup, Indonesia-based crypto exchange startup Pintu’s founder Jeth Soetoyo said. Founded in April last year, Pintu secured $6 million in a Series A round led by Pantera Capital, with participation from Intudo Ventures, Alameda Ventures, and Coinbase Ventures.

“With volumes growing, the fundamental business became much more attractive for investors,” Soetoyo said, claiming that the round was two times oversubscribed. Pintu now has 500,000 users – compared to around 100,000 at the start of the year – of which half have funded or traded with the account. Pintu’s revenue comes from a commission on each transaction.

Pintu is geared towards retail investors and plans to develop a function that allows users to make regular investments automatically from their digital wallet or bank account.

Soetoyo said he is bullish about Indonesia’s crypto market. “We believe [Indonesia is] five years behind where the US and other developed markets are.”

Indonesia’s commodity futures trading regulatory agency Bappebti puts the number of crypto investors in the country at about 4.5 million – around 1.6% of the population – whereas that percentage is at 17% in the US, according to a survey conducted by the New York Digital Investment Group.

Pintu is not the only company riding on the burgeoning enthusiasm for the crypto asset class. Global cryptocurrency exchange Luno is said to be in talks with Indonesian conglomerate Lippo Group to set up a joint venture to start its operations in the country, while Binance-backed local operator Tokocrypto is looking at a public market debut.

Apart from proactive regulations in Indonesia, hunger for yield among retail investors will drive up enthusiasm as well. “In the past, Indonesians [thought they] could invest only in local stocks, equities, bonds … now they can invest alongside the whole world,” Soetoyo said.

Deal scorecard

The total value of crypto and blockchain deals globally has spiked in the past five years, according to data from Pitchbook. In 2021 alone, crypto and blockchain companies raised $15.8 billion, triple that of last year’s, and at 473, the number of deals done this year so far is more than half of what was completed in 2020.

Global crypto and blockchain deals between 2017 and 2021. Source: Pitchbook
Global crypto and blockchain deals between 2017 and 2021. Source: Pitchbook

In Southeast Asia – and to a broader extent, Asia as well – total deal value and count are on track to meet or surpass 2020’s figures, although activity in the region is still just a fragment of the global pie. Singapore dominated deal flows recording 28 of 35 crypto and blockchain transactions this year.

Asia crypto and blockchain deals between 2017 and 2021. Source: Pitchbook
Asia crypto and blockchain deals between 2017 and 2021. Source: Pitchbook
Southeast Asia crypto and blockchain deals between 2017 and 2021. Source: Pitchbook
Southeast Asia crypto and blockchain deals between 2017 and 2021. Source: Pitchbook

Singapore and South Korea are the second-and third-most active Asian countries, based on the number of deals between 2019 and the present.

Expand Table

Country2019   2020   2021 Total
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2
United States897477655847605911869716
China2834382627172721139240
United Kingdom19161512181018193117175
Singapore161011615813111315118
Switzerland1241063711612475
Canada10814634413760
South Korea345654454444
Cayman Islands302020142519
Gibraltar011220011311
Austria10001120106
*As of 5/21/2021Source: Pitchbook

“People are starting to recognise [that] this is a complete reinvention of the way that we do business and asset transfers,” Kendrick Drijkoningen, a founding partner of crypto and blockchain-focused venture capital firm LuneX Ventures, said of the rise in investments in the crypto space. Cryptocurrencies such as Bitcoin and Etherum are built on blockchain technology.

“Blockchain enables you to digitise assets, so you can have peer-to-peer asset transfers directly from person to person without any central party … This opens up an entirely new design space for entrepreneurs.”

Crypto exchange Coinhako’s co-founder Yusho Liu said the exchange saw trading volumes grow 10-fold since the start of the year. He declined to disclose the trading volume.

Liu attributes the growth to retail investor interest while they are stuck at home during the pandemic, as also regulators lending legitimacy to cryptocurrencies. The exchange, which has 300,000 users in Singapore, is now planning to market itself across Southeast Asia. The company is in the midst of raising funds – the first time it is doing so since its launch in 2014.

No longer just about exchanges 

Pitchbook senior analyst Robert Le said fundraising at exchanges, which have raised large rounds during the last rally in 2017 as well as the recent rally, remains strong.

“But [compared to 2017 bitcoin rally] we are not seeing a lot of investments in mining companies this time around. We believe there are now negative connotations associated with crypto mining due to its environmental impact,” Le said.

Furthermore, higher institutional acceptance of cryptocurrencies is leading to traction in areas related to custodial, post-trading, securities lending and capital introduction services.

Cryptocurrencies are being used for transacting non-fungible tokens (NFTs) – most closely associated with digital art and games – or in decentralised finance, a network of applications that offer financial services without relying on central intermediaries.

These platforms present opportunities for new business models to emerge, said venture capital firm Signum Capital’s partner Yoke Yong Lai.

For example, a new artist could modify an original artist’s work, enhancing its value. Because the action was recorded on the blockchain, the two artists would share the revenue when it is sold and resold. Such a business model is enabled by crypto technology, he said.

With the increased interest in crypto, Lai said fundraising in the past year has been easier over time. “People used to be sceptical of token-enabled projects [but now] there’s no lack of high-net-worth investors’ enquiries.” Lai said.

Signum is in the midst of raising $100 million for its debut fund. Lai, who joined the firm last year, said the firm invests through a mix of both equity and the startup’s token. Investing through the latter allows it to divest its stakes much earlier than the traditional method – sometimes even within months – if the startup’s tokens accrue value quickly.

Defiance Capital’s Arthur Cheong said the crypto space has emerged as one of the bright spots for investors. Defiance, which backs decentralised finance startups, has raised about $40 million so far since launch last year, and is now worth around $300 million, he claimed. “From [the LPs’] perspective, there is a significant chance that they will lose money from investing in crypto companies, but they know that the returns can be multiples of what they invested in other sectors.”

Cheong believes decentralised finance is the next step after fintech. Financial service providers still typically work in silos, but as decentralised finance is built on blockchain platforms that are publicly accessible, companies can collaborate and improve on one another’s designs, speeding up innovation.

Investor interest

Global investment firms have signalled their confidence in Asia’s crypto market. In April, Tiger Global Management made its debut deal in this sector in Asia when it invested $25 million in the Indian cryptocurrency exchange aggregator CoinSwitch Kuber. The following month, it participated in a $40-million round for Hong Kong-based crypto lender and asset manager Babel Finance.

“All of those [big funds] are coming,” said Drijkoningen, pointing to venture capital star company Andreessen Horowitz’s recent announcement of a $1-billion venture fund for crypto and blockchain investments.

However, some active VCs in the region are taking a more conservative approach towards crypto.

Vertex Ventures has only invested in crypto exchange Binance’s Singapore unit so far, back in 2018. Vertex partner Genping Liu said that his firm is “cautiously optimistic” about the sector.

“It combines new technology with a new economic value capture model … there is no commonly accepted valuation model,” he said, adding that regulations are still catching up with the sector’s developments.

Alpha JWC Ventures also cited crypto’s practicality as a reason for their go-slow approach. The VC firm has not made any investments into crypto companies yet, although its managing partner Jefrey Joe said the firm is watching the space. “We don’t see a lot of use cases, even with Etherum and Bitcoin … I don’t know a lot of people that actually use bitcoin for payments,” he said. “If it’s not easy to understand, it’s still early, not widely adopted, it makes it even harder to actually invest.”

Offering a counterpoint, Drijkoningen said, “if you’re investing in an industry that’s growing so quickly, your chances of success are much higher.”

“The traditional venture is stagnant. The internet startups field is saturated. That to me is risky, not an industry that’s growing hundreds of per cent a year.”

Despite the bullish crypto outlook, some of the top fundraisers in Singapore have also gone offline. TokenBetter, an exchange that raised $50 million last April, stopped its social media activities since October, and its website is defunct. Last year it was reported that the Chinese police were investigating the company, which had $600 million in customers’ funds.

The website of Mark.Space, a firm that raised $22 million in April 2018, is inaccessible, and EximChain, which raised $20 million in April 2018, announced last November that it was closing down.

Is crypto for real? 

Critics have warned about the opaqueness of the crypto market and its value despite investors growing keenness. The volatility of its prices – bitcoin’s price has fallen by more than 40% since its April peak – makes it more of a speculative asset than an acceptable form of payment.

And unlike gold, bitcoin, though finite, is not tied to any commodity. In May, as the price of bitcoin crashed, JPMorgan Chase issued a note suggesting that institutional investors were returning to gold.

On the other hand, OANDA senior market analyst Edward Moya said institutional investors will continue to eye the opportunity to invest in cryptocurrencies for diversification, as it is accepted as an emerging alternative asset class alongside traditional gold.

According to the cryptocurrency data website CoinGecko, Bitcoin started the year at around $29,000 apiece, eventually climbing up to $57,600 just a month later. It reached a historical high of $63,576 on April 14, before gradually tumbling down to $37,685 on June 3.

“Over the next few months, I expect Bitcoin to stabilise and make a run at the $65,000 level. After the panic selling kicks in, Bitcoin will be the first to get dumped, so we are probably going to see Bitcoin closer to the $40,000 to $50,000 levels by year-end,” added Moya.

Tighter scrutiny

Even as governments worldwide are trying to figure ways to regulate the industry, several countries have announced crackdowns on the nascent industry.

In May, the US government’s Federal Trade Commission warned that crypto-related scams shot up 12 times since October 2020 compared to the same period the prior year. Turkey, India and China, have cracked down on cryptocurrencies while Singapore, South Korea and Japan have issued public warnings on the risk of investing in cryptocurrencies.

Outright bans on using and trading cryptocurrency are also futile, said Liu, pointing to China, where despite officially restricting crypto services since 2013, is still where two-thirds of global bitcoin mining operations take place and accounted for 90% of cryptocurrency trading volumes in 2017.

“It’s almost impossible to ban. It’s like coming up to say, ‘let’s ban the internet’,” he said. “It’s permission-less, you don’t rely on fiat channels. Innovation can almost be done anywhere in the world, and we don’t rely on central intermediaries to approve or disapprove transactions.”

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.