VC investment in blockchain startups shot up 600% in 2021 to nearly $15 billion
The growth of cryptocurrencies and blockchain technology in 2021 also attracted significant investment in the sector as venture capitalists continued to pump more money into the space.
In particular, through 2021, venture capitalists’ investments in blockchain technology rose by over 600% to $14.8 billion from $2.1 billion recorded in 2020, data from GlobalData shows.
VC activity was mainly concentrated in North America at $6.8 billion followed by Latin America at $3.4 billion, while Europe ranked third with $3 billion. Elsewhere, venture capitalists in Asia Pacific invested $1.6 billion in the sector while the Middle East had $0.44 billion.
Investments are increasing despite blockchain’s infancy
Investments in the blockchain sector increased in 2021 despite the sector being in its infancy. However, both investors and consumers aim to exploit the technology’s benefits when it is integrated into companies’ IT solutions.
It is worth mentioning that the investments were mostly channeled to specific sectors, with banking and payments at the forefront.
“A sector investing heavily in blockchain technology in banking and payments. Blockchain helps the payments industry manage remittances, central banks’ digital currencies and asset tokenization, but it is still a new technology that needs to be fully tested before it can be fully adopted in the payments infrastructure,” says Chris Dinga, payments analyst at GlobalData.
According to the report, despite the significant investments in the sector, barriers such as the lack of a clear regulatory framework and insufficiently qualified personnel prevent more players from getting involved.
However, the application of the technology is expected to skyrocket in the future led by central banks. In particular, over 90 central banks are already looking at unveiling central bank digital currencies (CBDCs) that will be powered by blockchain technology.
Furthermore, various established companies are taking the lead and pumping money into blockchain companies while betting on the technology’s growth. Along these lines, a previous report indicated that Google was ranked as the most blockchain-friendly listed company with over $1.5 billion invested in the space. However, Google offered a clarification on the involvement of blockchain finance.
“As the report says, while the small number of Blockchain-related companies we’ve invested in have raised $1.5 billion, we’ve only invested a small fraction of that ourselves,” a Google spokesperson said.
The effect of market volatility on VC funding
Interestingly, it will be worth monitoring how VC funding will be affected in 2022 considering that the crypto market has faced significant volatility. Market conditions have also forced some blockchain-powered companies to resort to restructuring their operations.
For example, crypto lending platforms Celsius and Voyager Digital have run out of business with a bankruptcy filing. At the same time, crypto exchange Coinbase was forced to implement a hiring freeze alongside the rollout of layoffs.
In addition, the actor has also been affected by the collapse of the Terra (LUNA) ecosystem which resulted in the loss of significant investments, along with fraud allegations.
