Canadian Fintech Investments Shift Towards Crypto and Blockchain

Despite a sluggish year for investments in Canadian fintechs in 2023, the market was dominated by investments in crypto and blockchain.

In 2023, Canada’s market prefers investing in crypto and blockchain over other options.

Written by: Shalini Nagarajan Last updated: February 7, 2024 07:50 EST Reading time: 2 minutes

Investments in Canadian fintechs may have slowed down in 2023, but there was one sector that dominated the scene – crypto and blockchain. According to KPMG’s global Pulse of Fintech report, VC-backed investments accounted for over three-quarters of all deals, with crypto and blockchain leading the pack with a total of 31 deals.

Crypto and Blockchain Take the Lead

In a total of 83 transactions valued at $711 million, over two-thirds were early-stage or seed investments. Crypto and blockchain secured the most investments for the second consecutive year, with a total of 31 deals. Software-as-a-service fintechs followed closely with 24 investments, while artificial intelligence and machine learning secured 15 investments.

Investor interest in cryptoasset fintechs may have been fueled by the expectation of the US SEC approving a spot bitcoin ETF. The SEC’s approval of 11 such ETFs in January was a significant milestone and a sign of broader industry acceptance. This approval could potentially boost investment in Canadian fintechs and drive new technological advancements in the digital assets space.

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Source: KPMG

Blockstream Funding Signs of Growing Crypto Interest in Canada

One notable Canadian investment in 2023 was in Blockstream, a blockchain infrastructure company. The company secured $125 million in funding to expand its bitcoin mining operations. This investment indicates a growing interest in blockchain technology in Canada and suggests that investors are thinking ahead to a future where a central bank digital currency (CBDC) or ‘digital dollar’ may become a reality.

If a CBDC were to be introduced, blockchain could potentially be the infrastructure used to underpin the system. This could serve as another growth catalyst for Canada’s fintech ecosystem.

However, reports suggest that Canadians show less enthusiasm for a CBDC. Instead, a significant portion of the population appears to favor cash transactions, advocating for legislation that requires merchants to accept cash during transactions.

Global Trends for VC Funding in Crypto

The decline in fintech investments in Canada mirrors a global trend in VC funding for the crypto sector. Galaxy Digital reported a 70% decrease in VC funding in 2023, with deal values totaling around $10 billion compared to nearly $32 billion in 2022. Several factors contributed to this subdued investment scene, including market cycles, slower growth, market volatility, higher costs, and global tensions.

Q&A – What Readers Want to Know

Q: What other factors contributed to the decline in VC funding for the crypto sector globally?

A: The decline in VC funding can be attributed to several factors such as market cycles, slower growth in the crypto market, increased market volatility, higher costs associated with conducting business in the sector, and global tensions.

Q: How can the approval of a Bitcoin ETF in the US boost investment in Canadian fintechs?

A: The approval of a Bitcoin ETF in the United States signals a significant milestone and broader industry acceptance. It could potentially increase investor confidence in the crypto market, leading to more investment in Canadian fintechs. This increased investment can drive new technological advancements in the digital assets space and contribute to the growth of Canada’s fintech ecosystem.

Future Outlook and Recommendations

The trends in Canadian fintech investments, with a shift towards crypto and blockchain, indicate a growing interest in digital assets and their underlying technology. As blockchain continues to revolutionize various industry sectors, including finance, it is crucial for investors and businesses to stay informed and adapt to the changing landscape. Investing capital in blockchain infrastructure and promising cryptoasset fintechs can be a strategic move towards future growth and innovation.

However, it is essential to carefully evaluate investment opportunities and consider the impact of regulatory developments, market dynamics, and global trends. Diversifying investment portfolios in the crypto sector and staying updated with the latest developments can help navigate through potential risks and take advantage of opportunities.

References

1. KPMG’s global Pulse of Fintech report
2. US SEC-approved Bitcoin ETFs
3. Blockstream’s $125 million funding
4. Canadians’ enthusiasm for a CBDC
5. Galaxy Digital’s VC funding decrease

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Disclaimer: This article does not constitute financial advice. Please do your own research before making any investment decisions.

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