Cryptoverse: What Crisis? Venture capitalists are betting big on crypto


July 26 (Reuters) – It’s not all doom and gloom.

Even as the crypto sector shivers in the bleak winter, venture capitalists are pouring money into digital currency and blockchain startups at a pace expected to surpass last year’s record.

In the first half of the year, VCs bet $17.5 billion on such firms, according to data from PitchBook. That puts the investment on track to surpass the record $26.9 billion raised last year, warmer and happier times for Bitcoin and others.

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“The current market conditions – I don’t think they bother investors,” said Roderick van der Graaff, founder of Hong Kong-based investment firm Lemniscap, which focuses on crypto and blockchain. “The capital available is huge.”

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

A double whammy of macroeconomic headwinds and explosions in major projects this year has sent bitcoin plummeting by about 65% from its November high of $69,000, with the total value of the crypto market collapsing by two-thirds to $1 trillion.

Companies have been reeling from falling prices, with major U.S. exchange Coinbase Global ( COIN.O ) and NFT platform OpenSea among those to cut hundreds of jobs.

However, some venture capital firms have avoided obscurity, many with significant war chests, as their faith in the underlying technologies behind cryptocurrencies remains strong.

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

David Siemer, CEO of California-based crypto management firm Wave Financial, said there are signs of a pullback from the extremely high valuations of crypto firms last year.

“It’s going to get a lot worse – we’re a few months into this cycle. In the last cycle, the pain for those looking for funding was about 12 months.”

AMERICAN HOT SPOT

North America, long the hot spot for venture capital deals, was again the focus of activity with about $11.4 billion in the six months to June, up from $15.6 billion for all of last year.

The figures contrast with overall venture 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 macro conditions and market turmoil cooled investment. Read more

Rumi Morales, chief investment officer at Digital Currency Group, a major crypto investor in the US, said the data reflects a growing belief in the crypto and blockchain sector.

“There used to be an existential risk in the space – that the whole industry was just going to disappear, it was all a pipe dream. That is no longer the case.”

Adoption of crypto as an investment vehicle has mushroomed in the past year, with the use of blockchain also gaining traction – even if the revolutionary changes the technology promises to industries such as finance and commodities remain elusive.

Among the mega US crypto deals in 2022: $400 million raised by US crypto exchange FTX in January; a $450 million fundraising round from 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 in VC investment in the first half of the year.

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

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

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Reporting by Tom Wilson in London and Meda Singh and Lisa Pauline Mattakal in Bengaluru; Editing by Pravin Char

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence and freedom from bias.

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