VC partner makes case for why crypto will stick

Fintech, financial services and blockchain will be “inseparable” and “inseparable,” according to Kraken Ventures partner Akshi Federici, who laid out a vision for the future during his talk at the Ethereum Community Conference, or EthCC, in Paris last week.

Why it matters: All major aspects of financial services can use the blockchain, including capital markets, asset management, payments, retail and institutional banking and insurance, she said.

• That, plus continued investment from Wall Street firms, are rallying points for the crypto industry, Federici said.

What’s up: “About eight or nine of the top 50 innovative companies in fintech for two years have consistently been crypto/blockchain-first companies,” she said, referring to Forbes rankings.

• The 2022 ranking includes Chainalysis, Circle and FTX alongside fintech darlings Carta and Stripe.
• “Obviously we have to adjust for the market recently, but extremely encouraging from a VC perspective to see this,” she said.

The big picture: “There’s obviously a lot of frustration from a regulatory perspective in the US, and there’s this view that a lot of innovation in crypto, fintech, blockchain etcetera is going to come from — outside of the US,” she said. while acknowledging that previous investments by bulge-bracket firms were “encouraging”.

Traditional Wall Street companies are invested.

• “There are more traditional financial institutions than ever betting on the blockchain,” Federici said, adding that they are pretty much “table stakes.”
• Morgan Stanley, Goldman Sachs, BNY Mellon, Commonwealth Bank and Citi have invested in a number of companies, including NYDIG, Anchorage Digital, Blockdaemon, Fireblocks, Gemini, Talos, Federici’s slide presentation showed.

Catch up quickly: Recall the investment bank Moelis & Co. just threw its hat in the ring and started a unit to focus on blockchain deals despite the crypto winter.

Yes, but: The hedges are many, she said.

• Federici rattled off the issues in infrastructure—scalability, security/privacy, interoperability, access—as well as legal and regulatory issues, jurisdictional issues, and ambiguity around how the courts will recognize blockchain.
• Plus the current state of global markets and digital assets.

What others say: Spencer Bogart, general partner at Blockchain Capital LLC, says startups and founders must make sacrifices to remain flexible amid what could be a prolonged market downturn.

• “The access to capital can be limited. That means you can have the ability to raise. But you also have to be careful with your burn, so you have at least 2-3 years of runway,” he tells Axios.
• There are also bright spots. “We will see a lot of intense focus on the gaming space. The likelihood of a big hit game in the next 1-2 years is very high,” Bogart said.

Meanwhile, Coinbase Ventures in a blog post last week summarizing the second quarter seemed to share Bogart’s opinion: “Web3 games remained a sector of heavy investment in Q2, with The Block estimating that $2.6 billion+ was raised. Our activity in recent quarters only strengthens our conviction.”

Our thought bubble: Maybe the crypto winter will lead to more general-fintech-meets-blockchain M&A.

Flashback: Exchange operator Kraken launched its eponymous venture arm in February 2021 led by Brandon Gath, Kirill Gourov and Federici.

Reality check: “This was like an eye-opener for me,” she said. “Apparently there is no court of law in any country, globally, that has recognized blockchain as an immutable ledger or proof of ownership.”

Between the lines: If proof of ownership of a home was certified on the blockchain, it won’t hold up in the courts.

Editor’s note: This story has been corrected to reflect the correct title of Akshi Federici. She is a partner in Kraken Ventures, not an operating partner.