Chinese dominance in the blockchain space now includes startup investments

According to big-four professional services firm KPMG, China’s dominance in the blockchain space has now spread to startups and startup funding, displacing Silicon Valley.

The company’s latest FinTech 100 report states that China now tops the global rankings for venture funding in Fintech. While their listing features 35 companies from the Americas, with only 14 in Asia, the size of the investments are much larger in China than anywhere else.

“Within three years, China’s fintech ventures have gone from only one company included in the top Established 50 rankings in 2014, to this year China featuring four of the top five companies and eight of the top 50.”
— – KPMG, FinTech 100

The 2016 third quarter Venture Capital report, by KPMG and CB Insights, details how VC funding flows into FinTech of all kinds, including bitcoin and blockchain startups. Q3 2016 saw Asian investment overtaking North American for FinTech startup investments.

Part of the change is attributed to seasonal investing habits, and the US Presidential election distracting investors. “VC-backed fintech companies dropped 12% on a quarterly basis in Q3’16, while funding fell 17% from Q2’16’s total,” the report found.

While the numbers have generally decreased, they have significantly decreased for North America for two quarters in a row. US and Canadian VC firms provided US$900 million in FinTech 96 deals in Q3 2016.

Meanwhile, China has had, “A record-breaking year of fintech investment,” posting increases for each of the past four quarters. Asian FinTech deals in Q3 2016 totalled US$1.2 Billion, although the funding was less dispersed and went to fewer startups. A single Beijing deal raised US$449 million.

Just last week several Chinese investors took part in the funding round worth $1.7 million for Taiwanese startup Bitmark. Meanwhile, a lending startup called Qufenqi drew a jaw-dropping US$449 million in investments from Chinese VCs.

“In Asia, a number of fintech areas are gaining more attention from VC investors, in part, because of their potential to traverse different markets. These sectors include blockchain, data and analytics and RegTech.”
— – KPMG & CB Insights, Venture Capital

The pattern of Chinese investment outpacing the US in the bitcoin space may seem familiar to those watching the industry closely. Chinese bitcoin exchanges have had consistently higher transaction volumes since 2013, and bitcoin mining has also concentrated in the region.

Bitcoin and blockchain investments for this quarter were down globally. Only five of KPMG’s FinTech 100 companies operate in the category. The listing typically includes only the biggest deals in blockchain startups. Blockstream and Ripple each raised $55m from investors in Q1 2016, making them #4 and #5 in the payment tech category on KPMG’s list for the year globally.

KPMG attributes many investments in the Far East to the global trend of governments creating regulatory sandboxes in order to drive financial technology innovation accounts for. The company points out that governments in Hong Kong, Australia, Singapore, Indonesia, Malaysia, and Thailand all created or announced sandbox environments for the banking sector during Q3.

The United States may be able to benefit from such a sandbox in the future too. “There is a growing sentiment that a sandbox is needed in order to help advance fintech and keep the US from falling behind other jurisdictions,” the reports states. “From a regulatory standpoint, the next few quarters may also see the introduction of a US regulatory sandbox or movement toward the development of one.”

However, KPMG’s main competitor, PwC, has a blockchain lab in Belfast, Northern Ireland. The lab’s director, Seamus Cushley, recently stated that $1.4 billion has been invested in blockchain start-ups in the last nine months, which is an unprecedented number that he has yet provide sources for. Totals for bitcoin and blockchain startups in 2016 that we have been able to gather come to about $460 million, $940 million shy of Cushley’s total.