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The digital assets market drew approximately $30 billion from Venture Capital funding in 2021, which marks a major milestone for the little more than a decade-old industry. Notably, that figure is more than quadruple the previous high of around $8 billion that VCs poured into the industry back in 2018.
2021: Year of Massive Institutional Investments in Crypto
Venture capitalists have expressed exceptional interest in investing in crypto firms throughout 2021, with analysts believing this trend would only grow stronger by 2022. While VCs put $5.5 billion into crypto startups for the entirety of 2020, this figure spiked to around $30 billion this year, representing an over 445% growth year-over-year.
Notably, there were multiple VC funding rounds worth over $100 million, valuing crypto businesses into the billions. Among the more noticeable examples, crypto lender Celsius Network raised $750 million in an oversubscribed fundraising round and crypto derivatives exchange FTX raised $1 billion in a Series B funding round at a valuation of $18 billion.
In late July, The Tokenist reported that big VCs and pension funds are aggressively investing in crypto firms. In the first half of 2021 alone, VCs poured $17 billion into crypto-focused businesses. Henri Arslanian, crypto leader and partner at PwC, even noted that there is some degree of competition among VCs when investing in crypto.
Arslanian stated:
“Let’s say they’re looking at a deal and they believe it’s worth $10 million, and you’re seeing large VCs come in and put a bid in for a higher valuation. This is happening a lot with very early-stage companies, say, $5 million to $20 million — the prices are being inflated.”
This year’s impressive growth is comparable to 2018, when crypto firms raised a staggering $22 billion through initial coin offerings (ICOs). However, only a small portion of that volume ($8 billion) came from VCs, with the majority coming from retail traders who were viewing crypto as a get-rich-quick vehicle.
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Why Are VCs Pouring Billions in Crypto?
The fact that VCs have put a significant amount of money into crypto firms suggests that they believe there is some significant technology at stake. Arguably, these large-scale investors presume crypto is still in its infancy, and don’t want to miss out on what many call the biggest investment opportunity since the inception of the world wide web.
VC investments can also imply that the crypto industry has matured enough and has passed its “Wild West” era. Recent moves by regulatory bodies, including the US SEC that ensured investors of no upcoming ban on the crypto sector, further underscore this perspective.
On the other hand, some experts view this as an indication that digital assets have gone mainstream. For instance, Spencer Bogart, general partner at San Francisco-based Blockchain Capital LLC, believes the industry is in full swing and has grown into an entire ecosystem. He said:
“We’ve moved beyond just digital gold. We’ve got financial services, art, gaming as a subcategory of NFTs, Web 3.0, decentralized social media, play-to-earn — all of that made investors think, `We don’t have enough exposure.”
Meanwhile, not everyone in the crypto sector is happy with the influx of institutional investors and VCs. For one, Twitter and Block co-founder Jack Dorsey has scrutinized Web 3.0, claiming that it is centralized – owned by VCs – which contradicts crypto’s core ethos of decentralization.
What do you think the influx of institutions in crypto means for the industry’s core ethos of decentralization? Let us know in the comments below.