Which crypto crisis? Venture capitalists are betting big on cryptocurrencies and blockchain startups

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 set 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 course to top the record $26.9 billion raised last year, a warmer and happier time for Bitcoin and co.

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

VC funds offer financing to young companies they believe have strong growth prospects. The data suggests solid faith in the future of crypto and blockchain technology, despite half a year for the industry.

A double wave of macroeconomic headwinds and explosions at major projects this year has seen bitcoin plunge about 65 percent from its November record high of $69,000 (€67,000), with the total value of the crypto market falling by two-thirds to $1 trillion (978 billion euros).

Companies have been reeling as prices fall, with major US exchange Coinbase Global and NFT platform OpenSea among those laying off hundreds of workers.

But some VCs are shrugging off the gloom, with many deploying significant war chests as their belief in the underlying technology behind cryptocurrencies remains strong.

Although not all investors are so positive in the face of the crypto blood, not by any means.

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

“This will get a lot worse – we’re a couple of months into this cycle. In the last cycle, the pain for those looking for funding was about 12 months”.

American hotspot

North America, long the hotspot for VC deals, has again been the focus of activity with around $11.4 billion (€11.1 billion) in the six months to June, compared to $15.6 billion (€15.2 billion euros) for the whole of last year.

The figures contrast with overall VC activity in the US, where deals fell to $144.2bn (€140bn) in the first half of the year from $158.2bn (€154bn) in the same period last year as macro conditions and market turmoil investments fell.

Rumi Morales, chief investment officer at Digital Currency Group, a major US VC, said the data reflected increasingly robust faith in the crypto and blockchain sector.

“There used to be existential risk in space – that the whole industry would just disappear, it was all a dream. It’s not like that anymore.”

Adoption of crypto as an investment tool took off last year, and the use of blockchain has also gained ground – although the revolutionary changes the technology promised to industries such as finance and commodities remain elusive.

Among the big US crypto deals of 2022: $400 million (€391 million) raised by the US branch of crypto exchange FTX in January; a $450 million fundraising round 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 dollars (2.1 billion euros) in VC investments in the first half of the year.

Lisbon-based Fedi, an app designed to help people receive, hold and use Bitcoin, said this month it had raised $4.2 million (€4.1 million) in seed funding.

“Within seven days we had all the investment commitments,” Obi Nwosu, one of the founders, told Reuters.

“And within less than a month and a half we had the first fundraising goal in the bank. Done”.