What crisis? Venture capitalists bet big on crypto


(Our weekly analysis of the wild world of cryptocurrencies)

Not everything is pessimism.

Even as the cryptocurrency sector shivers in the bleak winter, venture capitalists are pouring money into digital currencies and blockchain startups at a rate that will surpass last year’s record.

In the first half of the year, venture capitalists bet $17.5 billion on such companies, according to data from PitchBook. That puts the investment on track to top the record $26.9 billion raised last year, a warmer, happier time for bitcoin and company.

“Current market conditions, I don’t think investors are fazed,” said Roderik van der Graf, founder of Hong Kong investment firm Lemniscap, which focuses on cryptocurrencies and blockchain. “The capital available is massive.”

Venture capital funds offer financing to young companies that they believe have good growth prospects. The data suggests strong faith in the future of crypto and blockchain technology, despite a painful six months for the industry.

A double whammy of macroeconomic headwinds and blowouts at major projects this year has seen Bitcoin plunge around 65% from its November record high of $69,000, with the total value of the crypto market falling by two-thirds to $1 trillion.

Businesses have been rattled as prices plunge, with major US exchange Coinbase Global and NFT platform OpenSea among those laying off hundreds of workers.

However, some venture capitalists are shrugging off the gloom, with many rolling out substantial war chests, as their faith in the underlying technology behind crypto remains strong.

Although not all investors are so optimistic in the face of crypto carnage, by no means.

David Siemer, CEO of California cryptocurrency management firm Wave Financial, said there were signs of a reversal of the sky-high valuations of crypto companies last year.

“This is going to get much 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.”

AMERICAN ACCESS POINT

North America, long the hotspot for venture capital deals, has once again become the focus of activity with around $11.4 billion in the six months to June, up from $15.6 billion. for all of last year.

The numbers contrast with general venture capital activity in the United States, where deals fell to $144.2 billion in the first half from $158.2 billion in the same period last year as macroeconomic conditions and market turmoil cooled investment. .

Rumi Morales, chief investment officer at Digital Currency Group, a major US VC, said the data reflected a growing faith in the cryptocurrency and blockchain sector.

“There used to be an existential risk in space: that the whole industry would just go away, it was all a dream. That’s not the case anymore.”

The adoption of cryptocurrencies as an investment tool has skyrocketed in the past year, and the use of blockchain has also gained traction, even if the revolutionary changes in the technology promised to industries such as finance and commodities remain elusive.

Among US crypto mega deals in 2022: $400 million raised by US crypto exchange arm FTX in January; a $450 million fundraising round by blockchain developer ConsenSys in March; and $400 million raised by stablecoin issuer Circle a month later.

Activity is also strong in Europe, with $2.2 billion of venture capital investment in the first half of the year.

Fedi, a Lisbon-based app designed to help people receive, hold and spend bitcoins, said this month that it had raised $4.2 million in seed funding.

“Within seven days we had all the investment commitments,” Obi Nwosu, one of its founders, told Reuters. “And in less than a month and a half we had the initial fundraising goal at the bank. Done.”

(Reporting by Tom Wilson in London and Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Pravin Char)

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