Who's left standing in Israel's blockchain sector?

Litecoin, Bitcoin  photo: Shutterstock
Litecoin, Bitcoin photo: Shutterstock

As cryptocurrencies plummeted, more than 20 Israeli startups closed down in 2018.

What happened to the price of bitcoin in 2018 can be summed up in one word: crash. The 73% plunge in the price over the past year was the worst in 10-year history of the digital currency, which was first offered on January 3, 2009, exactly 10 years ago, by Satoshi Nakamoto, its little-known founder.

Bitcoin ended 2018 with an average price of $3,740, compared with $14,150 at the end of 2017, according to figures from the CoinMarketCap website.

Bitcoin is not the only one. The digital currencies market, which consists of over 2,000 types of currencies, had its worst year ever in 2018, with a total of $700 billion being wiped off it, leaving it with a total value 85% below its January 2018 peak. The market upheaval was felt not only by millions of investors worldwide, but also by the many blockchain companies that have sprung up in recent years. Many of these companies had to cut back their staff and activity at the end of the year, with some of them closing down completely.

Hogeg fires Stox employees in Israel

The blockchain companies operating in Israel had a tough year. Chinese bitcoin mining giant Bitmain closed its activity in Israel in December and laid off all 23 employees in its Ra'anana development center, including VP Gadi Glikberg. Another company to close last year was Stox, controlled by Moshe Hogeg, founder of the Singulariteam investment company and owner of the Beitar Jerusalem soccer team.

Hogeg's largest blockchain startup, Sirin Labs, has 60 employees; sources said the company carried out layoffs at the end of the year. Sirin Labs launched the Finney blockchain telephone in December. Hogeg told the Bloomberg website at the time that after distributors ordered 160,000 telephones from the company, the company had enough capital to operate for 12 more months. Market estimates say that over 20 Israeli blockchain startups closed down in 2018, with more closures projected for 2019. For the sake of comparison, a total of 550 Israeli startups closed down in all sectors in 2018, as recently reported in "Globes."

Besides Sirin Labs, the largest Israeli blockchain companies now are the First group, founded by Yariv Gilat, which has 65 employees, including 60 in Israel; Colu, controlled by Amos Meiri, David Ring, and Mark Smargon, with 62 employees; Orbs, controlled by Tal Kol and Uriel and Daniel Peled (60 employees); and Bancor Network, controlled by Eyal Hertzog and brother and sister Guy and Galia Benartzi (55 employees).

Although most of the blockchain companies operating in Israel have mostly Israeli founders, managers and employees, many of them are incorporated in foreign countries, mainly for taxation and regulatory reasons. On the other hand, there are also blockchain companies incorporated in Israel even though their owners and managers are not Israeli, such as Bitfarms (TASE: BLLCF), a Canadian bitcoin mining company. Bitfarms' share price was down 95% on the Tel Aviv Stock Exchange (TASE) in 2018.

eToro wants to expand in the US

One indicator of the state of the industry is the number of companies operating in it and the number of their employees. How many Israeli blockchain companies are operating now? That is a difficult question. First of all, there are companies whose activity is not confined to blockchain, such as eToro, controlled by David Ring and brothers Yoni and Ronen Assia, although a large proportion of their activity is related to digital currencies.

eToro, which operates a social investment platform, currently has 600 employees, including 350 in Israel. The company says that 100 of its workers are directly involved in blockchain. As reported in "Globes," the company completed a $100 million financing round in March 2018, designated for expansion into new markets, blockchain research and development, and digitization of its assets. The company expanded its business to the US this year, where it founded an ecommerce paltform for digital currencies and launched a digital wallet for cryptocurrency holders outside the US.

It should be taken into account that most blockchain companies are fairly young startups founded in the past two or three years. In general, in most cases, startups do not report it when they close down, and their official shutdown usually comes long after all of their employees were laid off.

Furthermore, no public or governmental entity has a list of Israeli blockchain companies, among other things because many of them are not registered as companies in Israel. The figures are therefore based mainly on reports by the companies themselves and reports by the organizations operating in the sector. It is reasonable to assume that these figures are incomplete.

How many startups shut down in 2018?

In order, all the same, to attempt to obtain a general picture of the activity in the local blockchain industry, "Globes" recently made inquiries with several entities in the sector. According to figures assembled for "Globes" by the Israel Bitcoin Association, headed by chairperson Meni Rosenfeld, and the Andromeda company, headed by CEO Tal Benno Sklar, which places employees in the blockchain sector, 113 blockchain companies were operating in Israel at the end of 2018, compared with only 53 at the end of 2017. If we take into account that several local companies closed down in 2018, it emerges that over 50 blockchain companies were founded in Israel over the past year, meaning that the number of companies doubled during the year.

At the same time, there are other figures that give a different picture in the Israel blockchain community. The Israeli Blockchain Association, founded in November and headed by founding partners Gadi Isaev and Roman Gold, reports that in December 2018 there were 223 active Israeli blockchain startups, compared with 68 startups at the end of 2017. According to these figures, 22 Israeli blockchain startups closed down in 2018, The Blockchain Association estimates the number of employees in the industry in Israel at 3,000: 2,000 in startups and 1,000 in large companies.

There are still other figures for blockchain activity in Israel, however. According to One Alpha, the First group's research company, 148 blockchain companies were founded in Israel in the past seven years, 21 of which are no longer active. According to these figures, there were 127 active Israeli blockchain companies at the end of the third quarter of 2018. Yaniv Feldman from One Alpha told "Globes" that the company was still examining the figures from the fourth quarter of 2018, when more companies closed down, while several new ones were added.

Record year for ICOs

Although Israeli startups have achieved international success in many sectors, both in successful exits and in becoming large technology companies, this has not yet occurred in the blockchain industry. At the same time, local blockchain ventures have raised over $1 billion in the past year - a considerable amount in comparison with other startups.

"An opportunity to clean out the cryptocurrency market"

The Israel Blockchain Forum was founded in March 2018 in order to unite the Israeli companies in the sector and represent them to decision-makers. The Blockchain Forum's founders include Roy Saar and Oron Snir from Mangrov Capital Partners, angel investor Ofer Rotem, and entrepreneurs Yoni Assia from eToro, Ido Sadeh from Saga Foundation, Sebastian Stupurac from Wings.ai, Maya Zehavi from Ontici, and Liraz Siri from Tabookey.

Blockchain Forum CEO Igal Nevo says that the Forum lacks complete data about the number of companies and their employees. "To sum up 2018, we can say that Israel began a welcome process of studying the field in depth, but this process is not fast enough, and the same fundamental problems that characterized the year, the most important of which is an inability to manage financial activity, will also accompany us in 2019," Nevo says. "The number of registered companies is not an accurate indication of the actual activity, because if they can't open an account a bank account in Israel, Israeli companies can't operate in the local market. Winter in the cryptocurrency market is an opportunity to clean out the market and work with the regulator on creating certainty, such as exists in all other high-tech sectors."

Rosenfeld also commented on the figures found in the examination, saying, "If we look at the general trend, we are moving upward. It's true that we have receded somewhat from the peak at the end of 2017, but the multi-year trend is unmistakable. We're seeing more ventures, more companies, more deals, and more employees. The wave of ICOs that swept us generated awareness of the sector's great innovations, but also created anxiety, because quite a few people tried and got burned in investments in unsuccessful ventures or by swindles masquerading as digital currencies, as also happened with the applications craze several years ago. Nevertheless, anyone who sticks around can by now tell the wheat from the chaff, which is already strengthening the market."

Published by Globes, Israel business news - en.globes.co.il - on January 3, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Litecoin, Bitcoin  photo: Shutterstock
Litecoin, Bitcoin photo: Shutterstock
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018