Despite the downturn, is crypto a good bet amidst global uncertainity?
Amidst increasing global uncertainty, venture capitalists have increased their stakes in cryptocurrencies and companies that would withstand the fallout of the Russia-Ukraine war. We have already witnessed some economies fall and in others there are clear signs of a crisis brewing.
Vis-à-vis conventional investment avenues, private equity investors are increasingly veering towards crypto projects – platforms driven by cryptocurrencies and blockchain based apps that feature tokenization. Also, crypto projects in the metaverse and Web 3 are also much sought after. According to data from Pitchbook, VC investment in such ventures totalled an astounding $10 billion globally in the first quarter of this year, the highest quarterly sum ever and more than double the level observed a year ago.
The present scenario is a far cry from a few years ago where venture capitalists were wary of making investments in cryptocurrencies. Based on insights from Quartz, let’s take a closer look at the VC focus on cryptos.
Cryptos gathering momentum
Despite Venture Capitalists pulling out elsewhere, crypto companies raised a record amount in the first quarter of 2022, especially in the US. According to statistics from investment monitoring firm Pitchbook, VC investments in crypto and blockchain-based funds have increased exponentially in recent years. Totals for 2019, 2020, and 2021 were $3.7 billion, $5.5 billion, and $28 billion, respectively.
In one regard, the investment pattern in 2022 differs from previous years: investments are no longer made in tandem with increases in the Bitcoin and cryptocurrency markets. Despite the fact that Bitcoin and other big currencies have had a bad year, investment has only surged in recent times.
The drop in large, later-stage transactions did not affect crypto companies. FTX, a cryptocurrency exchange, received $800 million in January, including from Softbank’s Vision Fund 2—despite the fact that rival Coinbase’s stock has dropped by nearly half in the year since it went public. Andreessen Horowitz, one of Silicon Valley’s largest crypto boosters, has announced the launch of a new research centre exclusively to the subject.
In Europe, venture capitalists invested €27.5 million, somewhat more than the pace established in 2021, which, as in the US, was a record. European fintechs had a very successful quarter, highlighted by Checkout.com in London and Qonto in France. In terms of total VC dollars spent, the United Kingdom and Ireland dominated Europe.
Is the crypto VC momentum sustainable?
As the hype about the metaverse of virtual worlds and the Web3 decentralised online paradise develops, so does the number of M&A agreements involving crypto target firms.
According to Dealogic, 73 agreements worth $8.8 billion have been closed so far in 2022, compared to 51 deals for $6.8 billion for the entire year last year. As the hype about the metaverse of virtual worlds and the Web3 decentralised online paradise develops, so does the number of M&A agreements involving crypto target firms. In many situations, blockchain tech companies are interested in the brand value of support from well-known companies as well as improving their integration with the financial system, according to me.
Despite potent drivers, there exist headwinds as the threat of a global recession looms large as oil prices surge, economies collapse, and aftermath of the Russia-Ukraine crisis that can lead to a domino effect. The confluence of these trends can potentially bring down the entire VC market.
However, if things do not get any worse and there is improvement in global economies by the end of the year then VC capital activity too shall ramp up.
