When the COVID-lockdown started, the outlook for Crypto Valley didn’t look promising. That’s why it’s even more surprising that the industry has come out of the lockdown relatively unharmed. Here are the latest findings of CVVC’s Top Report.
The Coronavirus lockdown earlier this year was a challenge for Crypto Valley. A study conducted by the Swiss Blockchain Federation found that in April, that four out of five blockchain startups were about to go bankrupt. Companies were laying off staff and stood little chances to get access to the governments’ emergency loans.
While those fears were indeed justified, the situation has turned out much better than we initially thought. Looking at the newly released Top Report by Crypto Valley Venture Capital (CVVC), the Crypto Valley had actually grown in size during the first half of the year.
Cryptocurrency valuations played a critical role
A key reason why Crypto Valley has proven to be fairly resistant against the corona crisis was the fast recovery of cryptocurrency markets. While the leading cryptocurrencies have tanked during the stock market selloff in March, they have quickly rebounded. Within just a few weeks after the crisis, Bitcoin and Ethereum were trading at pre-corona levels.
Cryptocurrency valuations are critical for many blockchain startups because they are financed via these assets. Take the Ethereum foundation: the Ethereum-network is worth about $25.3 billIon. That’s more than half of the top 50 Crypto Valley firms, which have a combined value of $37.5 billion. Hence, if Ethereum loses half of its value, Crypto Valley suddenly looks a lot smaller.
According to the CVVC study, besides cryptocurrency valuations, the advantages of the Crypto Valley ecosystem and favorable blockchain regulations in Switzerland and Liechtenstein have helped the industry to manage the crisis.
Blockchain businesses also received state support: The Swiss government paid out a total of 15 million Swiss francs (16.5 million US-dollar) in emergency loans. We don’t have the corresponding figure from Liechtenstein yet.
Fundraising continued throughout the crisis
Now to the numbers: Six months into 2020, there were 919 blockchain companies in Switzerland and Liechtenstein. That’s up 77 from 842 in the previous year. The number of employees remained flat at 4,784 people. The fact that staff numbers haven’t grown despite the increasing number of businesses is not surprising, considering that some businesses laid off staff and others were reluctant to hire new staff.
In the first half of 2020, 51 new companies have launched in Crypto Valley. 31 companies disappeared, which is way less than expected at the onset of the crisis.
Despite the crisis, many businesses have also been able to raise additional funds. The top-50 crypto companies attracted a total of $3.7 billion in capital, even though the willingness of investors to provide venture capital has significantly decreased during the crisis.
There are two reasons why fundraising remained relatively successful: First, many of these deals already started way before the crisis and were already signed or in their final stages. Second, many firms, especially if they provide a digital offering, were not heavily affected by the crisis. For some, the opposite was the case, and they benefitted from increased demand for digital solutions.
Altogether, the report suggests that Crypto Valley has gone through the crisis relatively unharmed. Or let’s say: It could have been a lot worse, and it was a lot better than previously anticipated.