In 2023, cryptocurrency saw a significant upturn. Venture capitalists are now coming back.
PitchBook, an American-based global marketing firm, stated on Thursday that this venture funding for businesses involved in the cryptocurrency space reached $1.9 billion in the fourth quarter of 2023, up 2.5% from the previous quarter. Since the March quarter of 2022, venture capital investments in cryptocurrency businesses have just increased.
The last few years of the so-called “crypto winter,” which made it extremely difficult for founders to secure capital, have left a mark on cryptocurrency entrepreneurs. This statistic is encouraging.
Increased Rates and Funding Issues
In 2022, venture investment for cryptocurrency companies experienced a sharp decline as investors fled riskier assets such as tech stocks and cryptocurrencies due to a rise in interest rates from major central banks. Major crypto company failures that year, including Do Kwon’s contentious algorithmic stablecoin Terra and Sam Bankman-Fried’s FTX, made matters worse for cryptocurrency startups.
The decline in cryptocurrency transactions caused damage to major venture funds, including Sequoia Capital, Tiger Global, and Andreessen Horowitz. Certain situations required funds to write down their entire position, such as the collapse of FTX.
Robert Le, a senior research analyst, stated in an interview that it was no secret that many investors have been writing more checks now. They have started to notice it in the data now. He also mentioned that the public market valuations of cryptocurrency-related companies such as Coinbase, Marathon Digital, and MicroStrategy have increased. This has also caused a bottom in venture capital investing.
During the last 12 months, Bitcoin’s value has more than doubled in price, reaching almost $52,000 per unit. In a similar vein, Coinbase’s stock has increased by around 140% in the past year.
Le also commented that most of the time, they have been observing a relationship between investments made in the public and private markets. Numerous publicly traded cryptocurrency companies have experienced growth in the past year. They are beginning to observe a similar trend on the private side as well.
There has been a decrease in the number of variety offers by 2.4 % during the fourth quarter. According to Le, this indicates that investments are going to the most vital startups. There has also been some capital concentration into a smaller number of companies in the cryptocurrency space.
Crypto Funding Shifts: Finance & Tech Take the Lead
According to PitchBook, the majority of well-known cryptocurrency projects that secure funding focus on financial and technological solutions. This includes decentralised computer infrastructure and the tokenisation of real-world assets like stocks and real estate on the blockchain.
Throughout the quarter, two notable fundraisers were Blockchain.com and Swan Bitcoin, two cryptocurrency exchanges that raised $100 million and $165 million, respectively. Wormhole, an open-source blockchain improvement firm supported by investors like Coinbase Ventures, Jump Trading, and ParaFi Capital, raised $225 million at a $2.5 billion valuation, making it the largest deal of the quarter.
Together.ai, a decentralised cloud platform for big basis fashions, led by Nvidia, Emergence, and Kleiner Perkins, raised $102.5 million in a Series A round, valued at $463.5 million post-money.
The influx of interest in cryptocurrency from financial institutions that followed the introduction of the first spot bitcoin exchange-traded funds (ETFs) in the United States late last year, according to Le, may be responsible for a large portion of these operations. Bitcoin ETFs have received approval. This has unlocked trillions from prominent investors, fueling passive money flow into the cryptocurrency.