G-20: A Strategic Deal for Crypto Investors
G-20 is a digital platform for global currency exchange (FX) and cryptocurrency exchange (CX) featuring spot and derivatives trading on digital assets. Through this platform, G-20 has successfully provided clients with FX services for over a decade. Strategically, G-20 expanded their market reach by offering CX trading on their platform in the early days of the decentralized finance (DeFi) boom. Today, G-20 stands as a highly liquid, cross-asset exchange for global clientele to trade crypto assets and derivatives in local Fiat currencies. In addition to over-the-counter (OTC) trading, their liquidity enables them to act as market makers in the crypto space. Essentially, emerging crypto projects such as a new coin or new digital asset exchange require liquidity for their growth. After significant due diligence by the G-20 team, the project is onboarded to the platform and G-20 begins to stimulate its trading volume by selling options, granted to them by the crypto client.
Market making in crypto is a risky business and success requires an advanced understanding of risk management, hedging strategies, and the underlying DeFi tech. The G-20 Team sets itself apart from other market makers through their decades of experience in centralized finance (CeFi) at some of the top institutions in the world. At investment banks such as UBS, Goldman Sachs, Deutsche Bank, and Credit Suisse their team lead operations in cross-asset option trading, global investment strategy, and risk management with a strong emphasis on emerging markets. In addition, G-20’s leaders have years of legal experience in corporate securities through their previous ventures which has ensured G-20 remains compliant with global regulation.
The primary strength G-20 offers is their strong footprint on the DeFi community. G-20 has assembled a team of leading experts in digital asset markets and blockchain technology with a strong understanding of computer science and artificial intelligence. This has enabled them to develop numerous software products (SasS) for asset management. These products use machine learning to drive OTC trading, risk management, and arbitrage and are used by G-20 and their clients to maximize gains. The strength of this software enables them to sell derivatives on digital assets with time horizons of over a year, twice as long as leading competitors. In summary, G-20’s value is rooted in their team’s experience in both CeFi and DeFi markets and their decades of success providing FX and CX services to devoted, global clientele. Their current fund raise aims to grow the G-20 team and provide the leverage necessary to capture the growing institutional demand for cross-asset exchange.
Significantly, Bridge Point Capital has assumed two seats on G-20’s Advisory Board held by Mark Young and Raghu Rao. Our team at BPC is assisting G-20 through capital introduction and expert consultation. In addition to raising capital, we’re capable of introducing G-20 to the financial institutions of New York City through our deeply rooted network on Wall Street. Traditional banks and investment firms are beginning to position themselves in the global CX market. This speaks to a fundamental shift in the structure of our global financial system and the growing demand for cross-asset exchange. G-20’s positioning in this revolution is prime, as they can provide a scalable infrastructure to provide CX services to these highly liquid OTC clients. In addition, these institutions represent potential acquirers of the platform which is the exit strategy G-20 intends to pursue upon sizable growth. Their ambition is to achieve unicorn status in a time horizon of just 3 to 5 years. Considering the speed of growth this space has seen in the past few years, it’s an entirely reasonable projection.
Market Opportunity
Right now, it’s a buyers market for crypto. The recent collapse of the $3T crypto market has wiped out nearly all gains acquired in 2021. The total CX market sits at $1.1T today, a +1.5x net gain from $763B at the start of 2020 (see Figure 1.) This -2.5x market collapse 6MTD from CX’s peak in November might deceive traditional investors, but crypto believers understand that this type of volatility is expected. CX is a revolutionary market designed to cater to the decentralized financial (DeFi) needs of the global economy. However, with decentralization comes volatility, especially when anyone with access to an exchange can spot trade crypto.
The popularization of speculative trading by casual and institutional investors produces correlative trends between stock markets and crypto markets. At the start of 2021, the stock market showed healthy gains after recovering from the 2020 market crash driven by the pandemic (see Figure 2.) This bull market spilled over into global CX trading which drove the unprecedented gains seen in 2021. The “Crypto-Crash” followed shortly after in November with a peak of $2.83T and -2.5x losses as of June 2022. In parallel with crypto’s losses, stocks have fallen 22% yielding losses of approx. -12% 1Y. This correlation is intuitive considering crypto is a bullish asset and by all indications, the market is entering a recession.
Figure 1. Total Cryptocurrency Market Cap through January 2020 to June 2022. Highlighted timepoints include: the start of 2021, November 2021’s nearly $3T high representing a +3.7x YTD gain, and June 2022 at $1.11T representing a -2.5x 6MTD collapse. Since 2020, the CX market is net positive with 1.4x gains 2.5YTD. (Source: CoinMarketCap.)
Figure 2. Top 3 Stock Indexes 5Y & 1Y Performance as of June 2022. Both panels feature the gains of the top three stock indexes: SNP 500, Dow Jones Industrial Average, and Nasdaq Composite. The time horizon is based on 5Y and 1Y respectively as of June 2022. (Source: Google Finance.)
Market adjustments aside, there is true value in cryptocurrencies and digital assets as a whole. It’s clear the general public is beginning to understand its value, as shown by the most recent crypto bubble. In fact, the recent crash of the markets might incentivize more people to shift to DeFi. A major driving factor for this crash is the 40-year high on inflation which currently sits at 8.6% (Source: US Inflation Calculator.) This is primarily due to the war on Ukraine (Source: WEF, May 2022), but is also significantly driven by the excess printing of money by the Federal Reserve in response to the pandemic (see Figure 3.) From February 2020 to May 2022, just 18 months, the total currency in circulation of the USD has increased a staggering 28%. This excess printing of currency is gasoline to inflation and markets are aptly responding. A believer in crypto would view this crash as the exact reason why DeFi is so valuable, as there is no centralized entity able to dilute their assets.
Figure 3. The Fed’s Response to COVID: 5Y USD in Circulation. Currency in circulation of the USD, reflecting the response by the US Federal Reserve to the COVID pandemic. Here, we see a 28% increase in circulating USD from February 2020 to May 2022, just 28 months (Source: FRED Economic Data.)
From our perspective at Bridge Point, we saw the heavy flow of capital entering the crypto space in the past year. We believe that the growth of crypto is inevitable, as countless projects are being supported by strong venture capitalists and optimistic investors. As the functional applications of blockchain technology grow, so will the CX trading volume. The beauty about a CX platform is that G-20 makes revenue on every deal they facilitate, which means volatility (a notorious feature of CX) is G-20’s best friend. Notably, the 24 hour trading volume of crypto remains at nearly $80B with fluctuations reaching $100B+ and even over $1T on particularly volatile days (see Figure 1.)
It’s important to understand the competitive landscape of this space and how G-20 is positioned . Recent news broke early this month about two market making firms, Citadel Securities (Post-Val: $22B, 11-Jan-2022; Source: PitchBook) and Virtu Financial (EV: $7.06B, 17-Jun-2022; Source Yahoo Finance), who are establishing a CX platform in collaboration with Schwab and Fidelity (Source: Yahoo Finance.) These strong competitors partnered with even stronger investment banks to build a rival cross-asset exchange platform. Despite this, it simply shows that there’s clear interest from major financial institutions for the cross-asset services G-20 specializes in. The floodgates are opening on this market and G-20 is primed and ready to take on these major clients. This also illustrates a clear M&A exit strategy for the G-20 group and their investors by major, global financial institutions.
Why is G-20 a strategic investment for crypto investors? Firstly, G-20 is a cross-asset exchange platform which means it’s entirely dependent on CX trading volume. Thus, its revenue is generally independent of coin caps; unless the interest in crypto disappears entirely, they’re more-or-less guaranteed revenue. In addition, the notorious volatility in CX markets simply promotes their potential for gains on this front. Secondly, the crypto market has just crashed which means crypto is currently at a discount. Thus, it’s likely that strategic investors are going to start buying, causing the CX market to recover. In addition, G-20 is more than just a CX exchange platform, as they established themselves as FX providers. These dual services enable them to hedge losses on CX, keeping them liquid and afloat by the security provided by Fiat currency. Third, investing in a CX platform is a strong diversifier for digital asset investors. Finally, these experts have the knowledge to promote the gains of your crypto portfolio through their proprietary SaaS and expert advisory services.
Recent Events in CX
It’s important to understand the competitive landscape to see how G-20 is positioned in this space. Recent news broke early this month about two market making firms, Citadel Securities (Post-Val: $22B, 11-Jan-2022; Source: PitchBook) and Virtu Financial (EV: $7.06B, 17-Jun-2022; Source Yahoo Finance) establishing a CX platform in collaboration with Schwab and Fidelity (Source: Yahoo Finance.) These strong competitors partnered with even stronger investment banks to build a rival cross-asset exchange platform. This shows that there’s clear interest from major financial institutions for the cross-asset services G-20 specializes in.
Just this week, FalconX raised a $150M Series D from venture capitalists, post-valuing the crypto brokerage at $8B (Source: Yahoo Finance, PitchBook.) This round was led by both B Capital Group (AUM: $3.5B; Source: PitchBook) and Singapore’s sovereign wealth fund, GIC (AUM: $127B; Source: PitchBook) with notable follow-ons Tiger Global Management (AUM: $95B; Source: PitchBook) and Adams Street Partners (AUM: $51B; Source: PitchBook.) This valuation represents a 2.1x step-up for investors in just 10 months since their $210M Series C.
FalconX is a peer firm to G-20 in that they both facilitate mid-to-large size trades for their institutional clients. Significantly, they’re both backed by data science driven by AI and machine learning. In addition, FalconX also acts as market makers by providing liquidity services to crypto projects. Moreover, they offer their proprietary trading and asset management software to clients. Notably, FalconX is the only registered US CFTC cryptocurrency swaps provider (Source: PRNewswire.) It might be surprising that FalconX was able to double their valuation during a crypto winter, but clearly their Fiat-backed institutional clients and investors remain optimistic about CX.
G-20 offers these services and more with their sophisticated options library. Their software suite was built over 30 years for FX trading and has promoted G-20’s success in this space for the past decade. The suite is now being applied to CX trading and has served G-20 and their clients well during the recent market turmoil. There is a huge unmet need in DeFi for risk management which is where derivatives come in handy to hedge volatility. In this shift towards options trading, the G-20 Team emerges as the CX frontrunner in terms of historical successes. Their team has decades of experience applying risk management principles in traditional finance and they’ve proved the same strategies apply to DeFi. Notably, the strength of their options library enables G-20 to sell derivatives at time horizons twice as long as any leading competitor. In short, the floodgates are opening on this market and G-20 is primed and ready to take on major institutional clients looking to trade crypto.
Contact Information
Interested in this deal? Please contact info@bridgepoint.capital to for more information. To learn more about G-20, please visit www.g20.group.