The Cambridge Centre for Alternative Finance (CCAF) at the Cambridge Judge Business School has released its 3rd report covering the digital asset sector with the Global Cryptoasset Benchmarking Study. CCAF is the leading research institute in the world in regards to Fintech innovation including blockchain technology.
According to CCAF, the study incorporated 280 cryptoasset entities in more than 50+ countries including 175 service providers, 75 mining companies, and 30 individual miners. The data was collected between March and May 2020.
The CCAF estimates that the number of cryptoasset users totals around 101 million unique users across 191 million accounts opened at service providers in Q3 2020. In 2018, the 2nd Global Cryptoasset Benchmarking Study estimated the number of identity-verified cryptoasset users at about 35 million globally – thus since this report, the sector has increased dramatically.
According to CCAF, cryptoasset service providers operationally headquartered in North America and Europe indicate that business and institutional clients make up 30% of their customers – a significant portion of the sector.
Dr. Robert Wardrop, Director and co-founder of the CCAF, said the study should have the cryptoasset sector to grow:
“There are several crucial issues – ranging from regulatory compliance, security audit and insurance – that are still rampant and need to be addressed for the industry to fully scale. Our hope is that the insights captured within this study will offer foresight into the evolution of the industry and inform decision-making as the space matures.”
Apolline Blandin, Lead in Cryptocurrency and Blockchain at the CCAF, said the digital asset industry is “progressively finding its feet.”
“… it’s fascinating to see this unfolding in the data the CCAF has been collecting since 2016,” commented Blandin. “Developments in regulators’ collaborative dialogue and regulatory interventions in the industry have undoubtedly had immediate effects – as witnessed by increased levels of surveyed service providers performing KYC & AML checks on customers.”
The cryptoasset study notes that the industry has entered a growth phase and is no longer a novelty. Even while regulators engage with innovators in this sector of Fintech there are “notable headwinds” to its development. One of the challenges is AML/CFT [anti-money laundering and counter financing terrorism] – an area of concern in traditional finance. Recently updated rules by the Financial Action Task Force (and affiliated Travel Rule) are emblematic of these hurdles. Financial services is one of the most regulated industries in the world and cryptoasset firms need to comply to effectively mature.
“…further intertwining with the traditional financial system and greater institutional adoption are conditional on enhanced compliance with international standards, such as those laid out by the FATF. Survey data found that cryptoasset service providers legally incorporated in a jurisdiction member of FATF are more likely to serve traditional institutional investors.”
The CCAF report states that around two-fifths of surveyed firms are licensed or in the process of obtaining a license as regulation catches up. These firms are primarily located in Europe. The percentage of digital asset firms that are not doing and KYC diligence has dropped dramatically from 48% to 13% when comparing the 2018 report. A majority of surveyed custodial firms (54%) report having completed an external audit in the past 12 months.
Regarding crypto mining, the report claims that 39% of PoW mining is powered by renewable energy. The CCAF study found that 52% of ASIC manufacturers’ sales went to Chinese miners in 2019. These miners also benefit from a cost advantage and government support. To quote the report:
“23% of surveyed hashers report receiving support from governments, primarily in the form of locally- focused support, such as electricity subsidy for users within a region. Nearly two-fifths of those receiving local governmental support are based in China.”
Other findings of the CCAF report include:
- The growth in FTE (full-time equivalent) employment that followed the 2017 market frenzy has slowed considerably, with respondents across all market segments reporting a year-on-year growth of 21% in 2019, down from 57% in 2018. But not all cryptoasset firms are the same with some areas growing rapidly.
- Aligned with 2018 findings, new survey data shows that off-chain transactions, both in terms of volumes and numbers, continue to be dominated by fiat-cryptoasset trades (and vice-versa), meaning that users primarily interact with service providers, such as exchanges, to enter and leave the cryptoasset market.
- Exchanges based out of APAC record the highest share of cryptoasset-cryptoasset trades (40%)
- Stablecoins are growing in use with the share of service providers supporting Tether growing from 4% to 32% between 2018 and 2020, compared to 11% to 55% support growth for non-Tether stablecoins.
Dave Dowsett, Global Head of Technology Strategy, Emerging Technology, and Intentional Innovation at Invesco – the main sponsor of the report, affirmed that regulatory clarity will propel sector expansion:
“Our own journey in token economics provided us with experience with third party providers of token creation, digital token exchanges, token custodianship, and navigating the complex legal and regulatory requirements for such an endeavour. Further regulatory clarity and compliance is going to be needed as the industry moves to its next stage of growth.”
The 3rd Global Cryptoasset Benchmarking Study is available below or may be downloaded here.
global-cryptoasset-benchmarking-study CCAF 9.24.20