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Crypto Winter Thaws as VCs Reenter the Market

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Crypto Winter Thaws as VCs Reenter the Market

While venture capitalists focused on the cryptocurrency and blockchain sector are raising billions, their investments have dwindled. But how prudent is that, and how much is investing fewer dollars for more value as the crypto market itself shrinks is still a looming question.

It’s easy to take Wednesday, August 17 from crypto investor David Pakman announcement of the launch of CoinFund, a $300 million venture capital fund focused on Web3 projects, as a sign of confidence in an industry stuck in the midst of a crypto winter.

Mainly because today’s announcement isn’t that unusual.

Because if retail cryptocurrency investors flee or hibernate when bitcoin has led most other cryptocurrencies in falling more than 65% since its all-time high in November – witness Coinbase’s announcement that the Trading volume fell 38% in the second quarter – there was a clear lack of pushback by venture capitalists.

This includes mammoth new funds, starting with the $4.5 billion crypto fund that Andreessen Horowitz announced in May, with $3 billion earmarked for venture capital investments and the other third for seed funding. . That more than doubled its digital asset funds to $7.6 billion, Bloomberg reported.

Others include FTX Ventures, the $2 billion fund crypto exchange that FTX CEO Sam Bankman-Fried raised in January; Andreessen Horowitz veteran Haun Ventures raised $1.5 billion in March; the raising of $1 billion from Electric Capital (between two funds) in February; and in July, Multicoin Capital announced last month that it would allocate an additional $430 million to crypto startups.

See also: Musk, Dorsey Hint VC Money puts Web3 vision at risk

This included huge rounds, including institutional digital asset custodial firm Fireblocks, which raised $550 million at an $8 billion valuation in January, and March’s $450 million raise to a $4 billion valuation by Yuga Labs, the NFT company and future metaverse builder behind top Bored Ape Yacht Club collection project.

Up or down?

Still, the quality of the year for crypto depends on whether you are considering venture capital raises or investments.

Crunchbase reported as of July 15, just $9.3 billion had been invested in crypto companies in the first half of the year. That’s a far cry from the $12.5 billion invested in the first half of 2021, and behind the $23.5 billion for the full year.

However, CrunchBase noted that the number of venture capital, seed and pre-seed deals closed in the first half of 2022 – 534 – greatly exceeded the same period in 2021, when there were 456 deals.

In part, this drop in value, despite an increase in volume, was due to a drop in transactions on the high end, CrunchBase said. They pointed out that in the first quarter of 2022, there were six rounds in which at least $400 million was raised by a crypto firm. That number fell to just one round in the second quarter as it became clear that a crypto winter and likely a wider recession was in the foreseeable future.

“We’ve seen this story before,” Jordan Nof, co-founder and managing partner of Tusk Venture Partners, told CrunchBase. “If you think it’s a fad, you’re probably leaving the market, but we don’t hear that anymore.”

Buy the hype

A hot funding area is Web3, the movement to create a new World Wide Web on blockchain infrastructure. It is a segment that also includes the very hot metaverse and blockchain gaming industries.

This is CoinFund’s target, Pakman said in the announcement.

“Tech entrepreneurs and venture capitalists learn to look for architectural transitions that disrupt past patterns and create new ground for companies to create tremendous value,” he said. “In my 30 years in tech, I’ve never seen a bigger opportunity than crypto and web3.”

It’s a sentiment shared by many VCs. Among them is crypto investor Variant, which announcement $450 million for a fund that will invest $300 million in existing portfolio projects and $150 million in Web3 seed funding in July.

Plus, VC funding seekers know, Ethan Kurzweil, partner at Bessemer Venture Partners, Told VentureBeat in May.

“Many founders hastily rewrite their pitches to include a Web3 element,” he said. “Given enough time, Web3 seems to be making its way into every gaming pitch these days – whether it really fits or not. I don’t know if it’s the VCs pushing the Web3 zeal or the other way around, but the Web3 pendulum has indeed swung to the limit.

It happens enough that Block CEO Jack Dorsey had a high-profile conversation on Twitter with Tesla CEO Elon Musk about venture capitalists jeopardizing the company’s unchecked vision of the movement. aiming to build a new World Wide Web on blockchain infrastructure.

Read more: Musk, Dorsey Hint VC Money puts Web3 vision at risk

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