Below are some of my takeaways, along with excerpts and charts.
Anything in bold is my writing, and everything else is copied verbatim from the PDF.
1. There are approximately 101M “cryptoasset users”
An updated estimate of the number of cryptoasset users indicates a total of up to 101 million unique users across 191 million accounts opened at service providers in Q3 2020.
Service providers operating from North America and Europe generally report higher user activity, with the median firm indicating that 40% of total users are considered active.
2. Two trends in mining are a) renewable energy and b) financialization of hashpower
Only 23% of the surveyed hashers report receiving support from governments. This aid primarily takes the form of locally-focused support, such as electricity price subsidy for users within a region. 38% of surveyed hashers who receive government support operate in China, followed by Kazakh (19%) and Canadian (12%) hashers.
Hydropower is listed as the number one source of energy, with 62% of surveyed hashers indicating that their mining operations are powered by hydroelectric energy. Other types of clean energies (e.g. wind and solar) rank further down, behind coal and natural gas, which respectively account for 38% and 36% of respondents’ power sources.
Faced with increased competition and tight profit margins, miners with access to sophisticated financial products, such as hashrate or cryptoasset derivatives, have begun using them to hedge their risks (between 12% to 14% of all miners). This is paving the way for the financialisation of mining.
3. Institutional involvement is growing, and is more common in North America and Europe
A deeper analysis of the type of business and institutional clients reveals that, globally, cryptoasset service providers primarily serve cryptoasset hedge funds (37%), online merchants (30%), and miners (27%)
A considerable share of APAC companies serves miners (41%), in part explained by the high level of mining activities in the region, especially in China. Miners use their services to liquidate their coin inventory for national fiat currencies and cover fiat-based expenditures. Evidence from the study of miners’ hedging strategies also reveal that a growing number of miners rely on service providers to collateralise their coins (i.e. through loans) and unlock additional funds.
4. The industry is increasingly regulated, and increasingly resembles tradfi
The share of cryptoasset-only companies that did not conduct any KYC checks at all dropped from 48% to 13% between 2018 and 2020, most likely resulting from the progressive harmonisation of KYC/AML standards across jurisdictions
A decoupling of duties, such as between custody, clearing and settlement responsibilities, appears to be underway and may lead to greater resemblance with traditional financial market infrastructure.
…of surveyed entities, 22% have been incorporated in a country different from where their operational headquarters are based, and up to 15% in a different region. For these companies, top countries for incorporation include Switzerland, British Virgin Islands, the UK, and the Republic of Seychelles.
5. And some miscellany
Unsurprisingly, the older the company, the more likely it is to be profitable. 80% of firms aged 7 years old or older report having earned profits in 2019, compared to 60% for the 3-4 years old age group and 64% for firms that are 5-6 years old.
Stablecoins, both asset-backed and algorithmic, are also becoming more available, with Tether support growing from 4% to 32% of service providers and all non-Tether stablecoins growing from 11% to 55%. […] Among exchanges alone, the number of exchanges offering at least one stablecoin increased from 11% to almost half (48%) of the same. In June 2020 more value was transacted using stablecoins than Bitcoin for the first time.
APAC exchanges offer considerably greater leverage to users allowing for the chance of greater gain (or loss) for speculative investors. In our survey, 55% of surveyed exchanges offering leverage to users are headquartered in APAC, followed by 30% out of Europe.
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Postscript
Here are my notes from a great episode of The New Money Review, featuring the Cambridge survey team research lead Apolline Blandin:
- there were 250 survey responses, including more Chinese companies this time
- still lacking data from MidEast and Africa
- Coinshares reports miners’ renewables share at 70%, but this is due to discrepancies in measurement, eg, Coinshares report weights Sichuan hashrate much higher than Cambridge
- Chinese miners still have significant advantage in hardware prices (50-100% lower), factors include tariffs and shipping costs
- Miner subsidies in China are local government subsidies and not from Beijing / central govt; the 3 countries with most government subsidies of crypto mining are China, Kazakhstan, and Canada
- In 2017, Cambridge estimated ~35m users, this probably undershot at the time because they only report KYC users, and there were fewer exchanges KYC-ing users in 2017
- OTC volume is probably 2-3x on-exchange trade volume
End postscript.
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The Cambridge survey is just amazing work, and I look forward to the 4th edition!