Major finance and tech firms are pouring money into startups building technology to develop the crypto market, even though they're steering clear of the volatile currencies themselves.
Venture capital investments in crypto and blockchain startups that included funds from corporates have raced to $850 million so far this year, data compiled by PitchBook for Reuters shows. The 13 deals put the flows on track for a second straight annual record.
Such bets, by companies including London Stock Exchange Group and Microsoft Corp, spiked over five-fold to a record $2.4 billion over 117 investments in 2018. This suggests large companies see promise in the nascent technology, even as it struggles for acceptance.
They have mostly given digital coins, including bitcoin, a wide berth, avoiding direct investment because of worries over tightening regulation, frequent security lapses and high volatility.
The lack of mainstream embrace has sown serious doubts over the potential of cryptocurrencies to evolve from speculative tokens to means of payment capable of rivalling fiat money.
Bitcoin slumped by three-quarters last year after nearing a record of $20,000 in its frenzied 2017 bubble. It's still prone to wild price moves, underscored by a recent 20 percent jump that caused puzzlement among traders and analysts.
And though blockchain has found some use in sectors such as trade finance, its application has been relatively narrow.
Firms are looking at how, and if, blockchain and related technologies can be used in ways that could spark deeper change, said Richard Hay, UK head of fintech at law firm Linklaters.
"There are two dynamics at play," he said. "We can get something up and running and achieve cost savings, and also look longer term at ways of deploying the technology in more transformative ways."
Recent examples include a $20 million investment involving the London Stock Exchange and Banco Santander in a London startup whose platform can be used to issue debt on blockchain, the technology that underpins most digital coins.
The investments span startups from makers of cryptocurrency mining gear and exchanges, the PitchBook data to April 8 shows.
One key driver is a growing expectation that the "tokenisation" of assets from stocks to oil - essentially digitising them and allowing them to be traded on blockchain - will upend markets, lawyers and consultants working with fintech firms said.
"People are really enamoured by tokenisation - the ability to produce coins or other forms of value - so that's where we see all of the action at the moment," said Anton Ruddenklau, global co-head of fintech at KPMG.
"They are investing as a technological hedge as much as anything."
Bets involving corporate venture capital are usually small, the data shows. Deals this year had a median value of $6.5 million, a notch below the $8 million of last year.
Others are much bigger.
Bakkt, a cryptocurrency trading platform founded last year by New York Stock Exchange owner Intercontinental Exchange Inc , raised in December over $180 million from investors including M12, Microsoft's venture capital arm.
The rush of corporate venture money comes as traditional venture capital (VC) investments also pour into the sector. Last year 617 deals totalled a record $5.6 billion worldwide, the data shows, as venture capitalists assess how the technologies will impact the online economy.
"There is a huge experimentation in effectively the basic plumbing for a native economic layer to the web," said Jamie Burke, CEO of Outlier Ventures, a fund that has led investment in around eight blockchain-related projects.
But with that experimentation has come examples of failure.
In December, cryptocurrency project Basis said it would shut down and return funds to its backers including Google owner Alphabet's venture arm GV and Bain Capital Ventures because of concerns over regulation.
Cryptocurrency miners and exchanges make up the four biggest VC-backed firms by valuation, according to the PitchBook data.
Some have struggled amid the slump in bitcoin prices. The $12 billion-valued Bitmain Technologies, for example, last month shelved a planned initial public offering in Hong Kong.
Others have fared better. San Francisco-based exchange Coinbase, valued at $8 billion, saw non-U.S. revenue grow 20 percent last year to 153 million euros ($173 million), a filing to Britain's corporate registry last week showed.
The exchange's UK arm, which books the firm's non-U.S. revenue, accounts for almost a third of the firm's overall revenue, said Coinbase UK chief executive Zeeshan Feroz.
That suggests, according to Reuters calculations, worldwide revenue of around $520 million last year - a rare glimpse into the financial health of a cryptocurrency exchange.
Coinbase declined to comment.