Politics Finally Catch Up to Innovation – But Innovation Never Waited
Politics Finally Catch Up to Innovation – But Innovation Never Waited
In November 2022, the notorious collapse of FTX exposed one of the largest frauds in modern history. While fraud is not unique to any industry—think Enron or Long-Term Capital Management—the blockchain sector faced an unprecedented backlash. The collapse was a lightning rod for criticism, and the ensuing crackdown was swift and severe.
Despite the fact that many of us in the industry avoided exposure to FTX (none of our 40+ venture fund investments had direct equity ties to our knowledge), the entire sector bore the brunt of a regulatory assault. The Biden administration targeted dozens of companies, often without issuing clear guidance on compliance. It even went so far as to limit blockchain firms’ access to the banking system, raising serious concerns about overreach.
Yet, for those of you who were reading the Letter from London or engaging with our team, one thing remained clear: while politics (over)reacted, innovation kept charging forward. Founders didn’t wait for a kinder regulatory environment—they kept building. And the results have been extraordinary, with advances in blockchain technology exceeding expectations.
Betting against technological progress has always been a losing game.
Fast forward to now, November 2024, and we are witnessing a seismic shift. The U.S. now boasts its most pro-crypto Congress and President in history, with expectations high for legislation on stablecoins, market structure reform, and an end to frivolous lawsuits.
But make no mistake—this political about-face isn’t driving the innovation; it’s merely catching up to the reality of a digital revolution that was always inevitable.
You cannot un-invent Bitcoin. You cannot stop the open-source ethos driving blockchain development. And you certainly cannot hold back the tide of digital transformation that is already reshaping finance. Just as communication and content went digital in the 1990s, financial systems are now being rebuilt on digital rails. Blockchains are critical to this transition.
While headlines today buzz with Bitcoin's surging price and a renewed optimism for blockchain, we’re not surprised. This shift was always coming. The US political apparatus is finally waking up to what we’ve known all along: innovation doesn’t wait for permission.
For those who’ve been on the sidelines, now is the time to take a closer look. As early believers and investors, we’ve doubled down during the downturn—and we’re not stopping.
Blockchain Infrastructure Is Rapidly Advancing—and It’s Transformational
"Blockchains are slow, costly, and difficult to use." Sound familiar? It’s what skeptics used to say about the internet—or even personal computers. History has shown that technological progress moves at staggering speeds, and blockchain is proving no different.
Over the past few years, infrastructure improvements have supercharged blockchain networks, massively increasing capacity and slashing costs. Consider this: blockchains are now processing 50 times as many transactions per second compared to just four years ago. This rapid scaling continues to accelerate.
Source: a16z 2024 State of Crypto Report
Scaling Breakthroughs: Ethereum’s “Dencun” Upgrade
Ethereum’s landmark upgrade in 2024, known as "Dencun" (or EIP-4844, protodanksharding), marked a another turning point for blockchain scalability. This upgrade slashed fees for Layer 2 (L2) networks—blockchains built atop Ethereum that optimize for speed and cost efficiency. Since its implementation, fees on L2 networks have dropped dramatically, even as the Ethereum-denominated value they process has soared. Put simply, blockchain networks are becoming more popular and efficient at the same time.
Sending Money: Better, Faster, Cheaper
The most remarkable transformation? Transaction costs. Blockchains are rapidly becoming the most cost-effective way to send money globally. Thanks to scaling advancements, transaction costs have plummeted. For example:
Transactions involving USDC, a widely used U.S. dollar-pegged stablecoin, now average $1 on Ethereum—down from $12 in 2021.
On Base, Coinbase's popular L2 network, sending USDC costs less than a cent on average.
Compare this to traditional systems: the average international wire transfer costs $44. With blockchain technology, sending money globally is not only faster but dramatically more affordable.
In short, Blockchains are already the best way to send money around the world.
Source: a16z 2024 State of Crypto Report
Activity and Usage Have Grown Remarkably
What about the users? What about the use cases? Blockchain technology’s evolution hasn’t happened in isolation—it’s been matched by a surge in usage and adoption. Today, blockchains are no longer niche innovations; they are networks processing trillions of dollars in value. And we’re just getting started.
The growth in active blockchain users mirrors the early days of the internet—both following strikingly similar adoption curves. Take a look at this comparison:
Source: a16z 2024 State of Crypto Report
Stablecoins: The Irresistible Utility
A key driver of blockchain adoption is the rise of stablecoins, which are proving to be far more than just a trend. Unlike spot crypto trading volumes that ebb and flow with market cycles, stablecoin usage has shown remarkable resilience. The number of addresses sending stablecoins has continued to climb—even during downturns in the broader crypto market. Why? Because stablecoins offer unparalleled ease of transferring value.
In Q2 2024 alone, stablecoins facilitated $8.5 trillion in transaction volume across 1.1 billion transactions. To put this in perspective, that’s more than double Visa’s $3.9 trillion in transactions during the same period. Stablecoins are now on par with entrenched payment systems like Visa, PayPal, ACH, and Fedwire—a testament to their growing utility and adoption.
Whether for remittances, business transactions, or seamless value transfer, stablecoins are rapidly becoming the backbone of digital money.
The View from London: Politics Catches Up to Innovation
If you’re reengaging with the blockchain space, one thing should be clear: blockchains are now faster, cheaper, and more efficient than ever before. Usage is at all-time highs, and durable use cases—like stablecoins—are proving their staying power.
So, what does this all mean?
It means this was always going to happen. The inevitability of digital finance is an unstoppable force—one that no regulatory missteps or market downturns can derail. Over time, nearly every aspect of the economy will undergo digital transformation, and finance is no exception. Suggesting that regulatory challenges could halt this shift is akin to believing that the U.S. Department of Justice’s lawsuit against Microsoft in the 1990s would have stopped the rise of software in business processes. History has shown how profoundly mistaken that notion would be.
Despite the regulatory challenges of the past two years, innovation didn’t pause—not in the U.S., and certainly not globally. Blockchain technology continued its relentless march forward, and adoption followed, climbing steadily up and to the right.
At Blockchain Coinvestors, we’ve been investing through the downturn because we’ve always seen the writing on the wall. The digital transformation of finance is inevitable, and we remain committed to this sector.
We hope you’ll lean in with us as we continue to invest in the future.
Thank you for reading,
Mitch Mechigian
Partner, London
About Blockchain Coinvestors
Blockchain Coinvestors invests in blockchain businesses. Our vision is that digital monies, commodities, and assets are inevitable and all of the world’s financial infrastructure must be upgraded. Our mission is to provide broad coverage of early stage blockchain investments and access to emerging blockchain unicorns. Blockchain Coinvestors’ investment strategies are now in their 10th year and are backed by 400+ investors globally. To date we have invested in 40+ pure play blockchain venture capital funds in the Americas, Asia, and Europe and in a combined portfolio of 1,250+ blockchain companies and projects including 95 blockchain unicorns. Blockchain Coinvestors’ first fund of funds ranks in the top quartile amongst all funds in its category on both Pitchbook and Preqin. The alternative investment management firm was co-founded by Alison Davis and Matthew Le Merle.
“Investing in Blockchain Businesses”