Crypto Investment Trends That Venture Capitalists Are Bullish On
Venture capital investment in blockchain and cryptocurrencies in the first half of this year was more than double the whole of 2020 according to KPMG’s Pulse of Fintech study. The bi-annual report said investment in blockchain and cryptocurrencies in the first six months of this year beat the previous annual record from 2018. KPMG highlighted that a significant amount of institutional money flowed into the crypto space, showing the broadening of the investor base.
“Investor awareness and knowledge of the sector is growing, with investors now having a much better understanding not only about crypto assets but also the operational and procedural side of crypto — from custody and storage to storekeeping and the competitiveness and maturity of service providers,” said the study.
A number of firms raised more than $100m in funding rounds, including BlockFi ($350m), Paxos ($300m), Blockchain.com ($300m), and Bitso ($250m). There is also increasing interest in non-fungible tokens (NFTs) which allow trading in new or previously illiquid asset classes, such as professional real estate or art, as they are tokenized or fractionalized.
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KPMG predicted that in the remainder of this year the cryptocurrency space will continue to mature; there will be a stronger separation between cryptocurrencies and the use of blockchain technologies, further focus on regulatory frameworks, and the evolution of exchanges focused on areas such as NFTs.
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The interest in crypto has also led to a major uptick in regulatory technology firms focusing on the sector. For example, the study said Bullish Capital raised a significant amount to develop a blockchain-based cryptocurrency exchange platform that blends the performance, user privacy, and compliance benefits of central order book technology with the user benefits of decentralized finance.
Decentralized finance’s rise to prominence has offered significant expansions to the crypto market through activities like staking and protocol governance. According to Baek Kim, director of investments at VC fund Hashed: “The most important part of the crypto VC investments is that this is also an entry ticket to participate in crypto networks as a shareholder.” He added further:
“Crypto portfolios allow for investors to participate and contribute to the ecosystem in a much more engaging way than the traditional equity investments — through staking, node operations, governance proposals, liquidity bootstrapping, and many more. VC participation in crypto and blockchain projects means you can be part of this paradigm shift not just as an investor but as a participant.”
This growing appetite for blockchain startups is not restricted to established players in the still-nascent crypto space. New projects, especially those in the DeFi space, are also enjoying significant interest from private equity firms looking to be early backers of the next DeFi bluechip.
In a conversation with Cointelegraph, Rob Weir, CEO of upcoming DeFi platform Jigstack, attracting investments from VC funds was the easiest part of the private equity funding process. According to Weir, new blockchain projects need to consider issues such as vesting schedules and implications of token-represented equity on future price action for their native coins. He added:
“VCs require a significant amount of token represented equity and consolidate a large portion of what would become selling pressure. If they deliver on their promises then they are well worth the upfront sacrifice.”
Early-stage backing by retail investors was also another growing trend in 2021, especially amid the gains enjoyed by projects bootstrapped on IDO launchpads. Launchpad platforms often utilize a tiered subscription package that allows holders of their native coins to gain access to project token allocations before the public listing. According to cryptocurrency aggregator CryptoDiffer, the top 10 launchpad platforms in the market have recorded average returns on investment ranging between 11.3% and 68.2% thus far in 2021.