In the summer of 2016, the value of all crypto in the world was not quite $10 billion. Since then, that number has only increased. Today, anyone can buy crypto with Robinhood, S&P 500 companies have placed bitcoin on their balance sheets, and the overall value of the crypto market remains at more than $1.5 trillion as of writing.
BlackRock CEO Larry Fink recently asserted there was “very little demand” for cryptocurrencies.
“In the past, you’ve asked me about crypto and bitcoin. Again, in my last two weeks of business travel, not one question has been asked about that,” Fink said. Yet, the raw data tells a different story.
Venture capital funds have invested $17 billion into cryptocurrency companies this year―the most in any single year and equal to the amount raised in all previous years combined. Peter Thiel, Alan Howard, and Louis Bacon invested $10 billion of digital assets and cash into Bullish Global, a new crypto exchange.
The company raised $300 million in additional funding around that time. The investment alone would have made 2021 the biggest year for venture capital investment into cryptocurrency. Beyond the new exchange, the remaining $7.2 billion is already on par with the previous record of $7.4 billion set in 2018. Additionally, Andreessen raised $2.2 billion for a new crypto fund, which has become its third and largest so far.
Companies have not bought bitcoin for their balance sheets in Q2 like in Q1 2021. Venture capital funds, however, are pouring in a lot of money. Deals focused on blockchain companies outpaced all of 2020 in just the first half of this year. VC deal activity in crypto has increased from 0.89% to 5.97% from H2 2020 to H1 2021.
Clearly, while token sales and ICOs have received a lot of attention when it comes to crypto fundraising, venture capitalists have become very active in the space, as well. Startups today have a clear option of raising money from a crypto-focused VC fund―or even a traditional venture capital fund―build a product, and then launch it.
What happens when VCs get into crypto?
When a project raises funds privately with VCs, they don’t have to deal with the pressures of a token-holding community, which can be bountiful. Crypto and blockchain technology communities are supposed to have decision-making power, changing the way in which such projects are brought to market.
The project is beholden to this community to deliver a successful project. In order to support a token in the open market, projects spend millions of dollars. Projects brought to market in the 2017 and 2018 periods were wiped out by the crypto winter.
The project can instead focus on product development, instead of marketing, and taking care of all the risks that someone is going to dump a huge amount of coins and the project will lose overall value. A project can take on VC funds, focus on their product, and then later raise funds from the public, which can serve as a token distribution mechanism, as well.
The global crowdfunding market is worth $14 billion, and it is expected to triple by 2026. Blockchain has played a big role in this growth. Blockchain and crowdfunding have been a winning formula. EOS and Ethereum each raised more than $4 billion and $18 million respectively through token sales.
Token sales made it possible to invest small amounts before crowdfunding, and leveled the playing field for non-accredited versus accredited investors. Crowdfunding democratizes investing and fundraising.
This is even more true when the crowdfunding is done based on a decentralized formula. The best known example of crowdfunding and blockchain is ICOs (initial coin offerings).
Traditional fundraising has historically presented too many hurdles. It usually takes one of three forms: self-funding, bank funding, or venture capital. Most people don’t have enough money to self fund, banks require existing businesses with good revenues and cash flow, and venture fund capital often require crossover appeal. New businesses struggle to fundraise through traditional methods, inhibiting growth.
When we had the first wave of crypto popularity, people earned huge revenues from speculating on coins, instead of trying to find a reasonable and interesting project that can be useful in the long run.
Community has matured
The community has matured since the days of Wild West ICOs. People want to invest or participate in crypto projects with a promise beyond quick money. Many projects first bring VCs on board before doing a public sale, because VCs lend the project credibility―established investors, after all, have already done due diligence on the value and quality of the project.
The only thing we know about the metaverse is that, however it manifests, it will surprise us. After all, who knows what its completed form looks like?
Don’t be surprised if you see the metaverse combining social media, virtual reality, as well as blockchain and cryptocurrency technologies such as celebrities boasting NFTs in the near future. Already, celebrities such as Katy Perry and Gary Vaynerhuk have created their own NFTs. Expect more of that into the future.
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