It is not all doom and gloom in the global markets. Even as the crypto industry shivers in the persistent winter, venture capitalists are pouring significant amounts of money into blockchain and digital currency startups at a pace that is expected to outstrip 2021’s record highs.
In the first half of this year, venture capitalists bet around $17.5 billion on such companies according to data published by PitchBook. That puts investment on course to top the record of $26.9 billion raised in the past year, a warmer and happier time for Bitcoin and other cryptos.
Roderik van der Graf, the founder of Hong Kong investment firm Lemniscap, stated:
“The current market conditions – I don’t think they faze investors. The capital available is massive.”
Lemniscap is a firm that focuses on crypto and blockchain.
Venture capital funds provide financing to young firms they think have strong growth prospects. The data indicates that there is a solid faith in the future of blockchain and cryptocurrency, despite a severely painful six months for the industry so far this year.
A double whammy of macroeconomic headwinds and blow-ups at massive projects in 2022 have seen Bitcoin plunge by around 65% from its November record of $69,000, with the general value of the crypto market dropping by two-thirds to around a trillion.
Many firms have shuddered as prices drop, with major US exchange Coinbase Global and OpenSea NFT platform among those that have already laid off hundreds of workers. Yet some venture capitalists are ignoring and shrugging off the gloom, with many deploying huge war chests as their faith in the underlying technology behind the crypto coins remains strong.
However, not all investors are quite bullish in the face of the latest crypto carnage. The CEO of California crypto management company Wave Financial, David Siemer, said that there were some signs of a pullback from the sky-high valuations of crypto companies in 2021.
“This will get a lot worse – we’re a couple of months into this cycle. In the last cycle, the pain for those looking for funding was about 12 months.”
North America, for many years the hotspot for VC deals, has once more become the focus of activity with nearly $11.4 billion in the six months that ended in June, compared to $15.6 billion for the whole of last year.
The numbers appear to contrast with general VC activity in the United States, where deals dropped to $144.2 billion in the first half from $158.2 billion in the same period in 2021 as macro conditions and market turmoil chill investment.
Director of investments at Digital Currency Group, Rumi Morales, said that this data reflects increasingly robust faith in the blockchain and crypto industry. Digital Currency Group is a major American venture capitalist. Morales stated:
“There used to be existential risk being in the space – which the whole industry was just going to go away, it was all a dream. That is not the case anymore.”
Adoption of crypto as an investment tool came up in 2021, with the use of blockchain also gaining ground – even if the revolutionary changes from the technology promised to sectors like finance and commodities remain quite elusive.
Among the mega United States crypto deals in 2022: $400 million was raised by the US arm of crypto exchange FTX in January; a $450 million fundraising round done by blockchain developer ConsenSys in March; and $400 million raised by stablecoin issuer Circle a month later.
Activity is strong in Europe as well, with $2.2 billion of VC investment in the first half of the year. Portugal-based Fedi, an app that is designed to help people receive, hold and spend bitcoin, said that this month it had raised $4.2 million in seed financing.
Obi Nwosu, one of its founders, told reporters:
“Within seven days we had all of the investment commitments. And within less than a month and a half, we had the initial fundraising target in the bank. Done.”