Data is the key to unlocking institutional crypto adoption
Our Investment in Kaiko
Yesterday our portfolio company Kaiko announced that they’d raised a $24m Series A led by Anthemis alongside Underscore VC.
Pawel and I have been working very closely with Kaiko for almost 2 years since we first participated in their seed round. Given the recent news, we figured it would be a great time to share why we invested and, in particular, why we believe that Kaiko will be a key driver for unlocking institutional crypto adoption.
Our Quick Take on Crypto Markets
Over the past 6 months, we’ve seen institutions and individuals pile into the crypto market like never before. This drove crypto prices to an all-time high, with the price of Bitcoin peaking at $63,000 in April. The global crypto market cap has now reached an astounding $1.36trn up from $270bn a year ago.
Whilst much of this has been fuelled by speculators and traders, the crypto and blockchain market has much more potential than just enabling users to make a quick buck. In fact, this is just the very beginning.
Blockchain is enabling the creation of a host of new financial applications and is opening up access to financial markets that were previously closed off to the masses. In order for this to happen at a large scale and so as to facilitate the trading, creation and valuation of these new financial assets, access to pricing and trading data will be crucial.
To date, extracting this data is a challenge as it requires aggregating data from hundreds of exchanges, all in different formats, with little to no historical data available. On top of this, regulation has made it compulsory for many institutions to use a third-party data provider when creating, investing in and valueing digital assets. This means that building their own data infrastructure in-house is no longer an option.
Meet Kaiko
Kaiko is solving the above problem. They are the leading provider of financial crypto data. Their platform aggregates trade and order book data across hundreds of different exchanges both centralised and decentralised. Kaiko normalises the data, stores it and provides it to institutional investors, regulators, exchanges, market makers and startups via easily accessible APIs. They act as the single source for market information on financial digital assets data.
Their mission is premised on the idea that high-quality data drives market efficiency, which in turn supports institutional adoption of crypto assets. Today, their trade and order book data feeds are the most comprehensive and granular in the industry, leveraged by hundreds of enterprise clients and powering the industry’s leading products. They currently support some of the world’s largest financial institutions and have partnered with leading financial platforms such as S&P, Dow Jones and Refinitiv, amongst others
Investment Thesis
A nascent but rapidly growing market with the potential to take on Wall Street as well as support it ;)
The emergence of the Defi ecosystem has demonstrated blockchain technology’s potential to digitise finance and disintermediate traditional financial markets through the creation of programmable money and financial instruments — from decentralised exchanges that allow users to trade without brokers to lending protocols that do not involve loan officers or credit committees and leverage algorithms instead. Nearly $80bn is already locked up in Defi applications, up from about $1bn a year ago and it’s showing no signs of slowing down.
Adding to this, we can expect traditional financial institutions to start leveraging blockchain technology to automate processes and save costs. This is already starting to happen with banks choosing to tokenize some of their assets from stocks, debt, real estate and even fiat currencies.
Data as a key pillar to unlocking institutional adoption
Accurate pricing and trade data is key to enabling the institutional adoption of crypto, particularly when it comes to ensuring tradeability. Similarly to how Bloomberg and IHS Market have become a required toolset for many financial employees, Kaiko has the potential to become the tool for anyone looking to value, create and trade digital assets.
Whilst several players have emerged to tackle this problem in recent years, the majority are not set up to serve large financial institutions, who ultimately will be the biggest consumers of financial digital assets data.
First mover advantage and strong technological moat
Kaiko was the first business to tackle this market and have been operating since 2014. This gives them a significant advantage when compared to new entrants particularly given that historical data is hard to access. Crypto exchanges typically provide no more than 7 days of historical data meaning that any business looking to enter this space will face a cold-start problem in that they will struggle to access and provide historical data. Kaiko has a strong first-mover advantage in this respect as they have 6 years of data.
To add to this, Kaiko has developed a strong technological moat via the 100+ integrations with exchanges. This is not only technically challenging but is also a huge data normalisation challenge that requires manually mapping and normalizing instrument codes across all exchanges. As they transition to providing more on-chain data, this problem becomes even more complex.
An incredible team going after this opportunity
Ambre, the CEO, is a clear case of what we call an “animal” at Point Nine. She has relentless drive and demonstrates perfectionism in terms of what she does. Having spent most of her career in financial services she has a deep insight into what her customers want and need. She’s been supported from day one by Pascal Gauthier, the CEO of Ledger, who laid the initial groundwork for Kaiko, brings a wealth of operational experience and is now actively involved as a board member. Over the last year, she’s assembled a rock star team between New York and Paris with new joiners including their Head of Growth Elodie from Silicon Valley Bank and Head of Product Bediss from Euronext. It’s been an absolute pleasure to work alongside Kaiko on the very first step of their journey!
Aside from Kaiko, we’ve also invested in Chainalysis, Tenderly and Bitbond in the crypto space. We’re on the lookout for the next generation of crypto enablers and building blocks, if you know anyone building something in this space, let us know!
Join Kaiko
Kaiko is hiring remotely across all teams, you can check out their jobs page here.
