Startups operating in the cryptocurrency industry have been able to raise more than $100 billion in venture funding since the founding of this sphere of activity.
This year, the volume of investments in the area of digital currencies has increased. The implementation of the corresponding tendency was observed simultaneously with the growth of the exchange rate of Bitcoin and other major tokens. According to data collected by DeFiLlama, since 2014, the amount of funds raised in the crypto sector has amounted to $101 billion. At the same time, the results of a study conducted by Block Research indicate that since 2017, total investments in the digital currency industry have reached $95 billion.
Fundraising in the form of venture capital deals and token sales has been a major factor in the tendency in which the digital currency area showing significant growth. At the same time, billions of dollars spent on financing crypto startups ultimately generated mixed results for investors.
Paul Veradittakit, managing partner at Pantera Capital, the $4.7 billion crypto investment firm, suggests that traditional exits in the form of landmark acquisitions and public listings took longer than expected from venture capital. He also noted that Coinbase Global’s $86 billion direct listing on the Nasdaq in 2021 during the last crypto bull market was a notable exception. Paul Veradittakit underlined that exits were generally rare and largely limited to small trade sales.
In the cryptocurrency industry, investors have also been hit by unexpected drops in the past from promising and prospective startups such as FTX and BlockFi. Since then, companies such as Tiger Global Management LLC and Temasek Holdings Pte have largely left this area of activity. According to Block Research, since the beginning of 2023, Tiger Global has concluded only four cryptocurrency deals after the last surge, as a result of which the firm backed many startups.
Last year, Temasek announced no plans to invest in crypto exchanges, writing down its $275 million stake in FTX. The company did not provide comments on further intentions in its activities.
After the excesses of 2021 and 2022, the fundraising of cryptocurrency startups has sharply decreased. This tendency corresponds to a broader decline in investment in the fintech sector, which in 2021 peaked at over $110 billion globally.
Tokens issued by startups help to offset the challenges. Venture capitalists often purchase these tokens as part of early-stage funding pacts.
Ray Hindi, chief executive officer of L1 Digital, says that institutional backers who lost money on cryptocurrency bets found themselves in an appropriate situation because they arrived too late or were lured into investing in equity. In this context, it should be noted that tokens provide other opportunities and prospects. These unstable digital assets can often be sold relatively quickly and can generate short-term returns, despite certain lock-ups. Many large crypto venture outfits, such as Polychain Capital, have their own funds that help manage tokens amassed through investments.
Kinjal Shah, general partner at Blockchain Capital, is one of those who takes an older-school approach. She is involved in the practice of investment positioning, still focused on a venture-style return. Kinjal Shah noted that the mentioned approach provides financing for life cycles from five to ten years. In this case, planning takes into account the long-term perspective.
Richard Galvin, co-founder of Digital Asset Capital Management, says that for some, liquid tokens can reduce the return cycle to venture investors from five or ten years to just two.
Data from Block Research shows that Coinbase Ventures tops the charts with 443 investments, or about 4% of all deals since 2017. Animoca Brands Corp. and Outlier Ventures Ltd. are in the second and third places, respectively.
PitchBook data shows that venture investments in cryptocurrency increased to $2.5 billion in the first quarter of 2024. It is worth noting that in October-December 2023, the corresponding figure was fixed at $1.9 billion.
Matthew Kennedy, senior market strategist at Renaissance Capital, said during a conversation with media representatives that up to 15 crypto companies may become public shortly. Currently, there is an increase in activity in the Bitcoin mining sector related to mergers and acquisitions. For example, Core Scientific Inc. and Bitfarms Ltd. have filed takeover bids.
Hoolie Tejwani, director of corporate development and venture sat Coinbase, says that activity in the area of mergers and acquisitions and IPOs in the digital asset industry will accelerate as the sector matures. At the same time, in this context, it was noted that the mentioned activity is hampered by a lack of clarity in regulation.
As we have reported earlier, Blockchain Company Squad Labs Raises $10 Million.
