Which crisis? Venture capitalists bet a lot on crypto

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

According to PitchBook data, venture capitalists put $17.5 billion into these companies in the first half of the year. This could allow investments to surpass the record $26.9 billion raised last year, marking a warmer and happier time for bitcoin and others.

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

Venture capital funds provide financing to young companies that they believe have strong growth prospects. The data suggests strong confidence in the future of crypto and blockchain technology, despite a deadly semester for the industry.

Macroeconomic headwinds and the failure of major projects this year have sent bitcoin down about 65% from its all-time high of $69,000 in November, and the total value of the cryptocurrency market has fallen two-thirds to $1 trillion.

Companies shuddered at the falling prices, including major US exchange Coinbase Global and NFT platform OpenSea among those laying off hundreds of employees.

Still, some venture capitalists are shrugging off the gloom, and many are deploying significant war chests as their faith in the technology underlying cryptocurrencies remains strong.

But not all investors are so optimistic about the cryptocurrency carnage, far from it.

David Siemer, CEO of California-based cryptocurrency management firm Wave Financial, said there were signs of a slump in soaring cryptocurrency company valuations 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 seeking funding was about 12 months.”

THE AMERICAN HOTSPOT

North America, which has long been the hot spot for venture capital deals, was once again at the center of activity with about $11.4 billion in the six months to June, up from 15.6 billion for the full year from last year. .

These numbers are in stark contrast to overall venture capital activity in the United States, where transactions fell to $144.2 billion in the first half of the year, from $158.2 billion in the same period last year. Macroeconomic conditions and market turmoil deter investment.

Rumi Morales, chief investment officer at Digital Currency Group, a prominent US VC, said the data reflects an increasingly robust confidence in the crypto and blockchain industries.

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

The adoption of crypto as an investment tool has exploded over the past year, with blockchain use gaining momentum as well – even as the game-changing technology changes promised to industries such as finance and commodities remain elusive.

Among the US crypto mega-deals in 2022: $400 million raised by the US branch of the FTX cryptocurrency exchange in January; a $450 million fundraiser 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 in venture capital investments in the first half of the year.

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

“In seven days we had all investment commitments,” Obi Nwosu, one of the founders, told Reuters. “And in less than a month and a half, we had the original goal of getting money in the bank. It’s done.”

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