Venture Capitalists Remain Optimistic On Crypto Amid The “Winter”

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Crypto prices dropped on Tuesday, with bitcoin falling back below $21,000 in early-morning trades. It appears that the crypto winter might not be over after all, although Tuesday’s plunge occurred alongside a pullback in other risk assets, including the Nasdaq indices.

Investors await Wednesday’s announcement from the Federal Reserve, which is expected to hike interest rates again. In the meantime, data shows that venture capitalists haven’t given up on cryptocurrencies despite the market’s weakness.

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Venture Capitalists Heading For New Record On Crypto Investment

Citing data from PitchBook, Reuters reports that venture capitalists have been dumping capital into startups in the digital currency and blockchain markets. In fact, they've been doing so at a pace that's on track to beat the record set last year.

In the first six months of this year, venture capital firms invested $17.5 billion in digital currency and blockchain startups. Data from PitchBook shows that in all of last year, VCs poured $26.9 billion into startups in those markets, a new record.

However, what makes this year's investments so interesting is that last year's record came at a time when the crypto markets were skyrocketing. On the other hand, this year's crypto winter has brought widespread selloffs amid high correlations with U.S. tech stocks.

Roderik van der Graf, founder of crypto and blockchain investment firm Lemniscap in Hong Kong, told Reuters that he doesn't think the current market conditions are fazing investors at all. He added that the available capital is "massive."

Deeper Into The Data

The data from PitchBook shows that North America led the way in crypto VC activity with about $11.4 billion worth of deals year to date through June, compared to $15.6 billion in all of 2021. Interestingly, total venture capital activity in the U.S. alone declined to $144.2 billion through June this year, down from $158.2 billion in the first half of 2021.

This year's super-sized crypto deals in the U.S. included $400 million raised by crypto exchange FTX's U.S. arm in January, $450 million raised by blockchain developer ConsenSys in March, and $400 million raised by stablecoin issuer Circle in April.

Crypto-focused VC activity in Europe is robust as well with $2.2 billion in deals in the first six months of the year. Portugal's Fedi, an app that enables bitcoin users to hold, receive and spend the cryptocurrency, raised $4.2 million in a seed round. Co-founder Obi Nwosu told Reuters that they had secured all the necessary investment commitments in a week.

Venture Capitalists Unfazed By Crypto Troubles

Venture capitalists provide financing to startups they think have strong prospects for growth. The fact that they're pouring so much capital into the sector demonstrates their view that it's here to stay — despite the broad-based weakness that has swept through the crypto market this year.

The bitcoin price has tanked about 65% since its record high in November at $69,000, assisting the plunge in the entire crypto market's value, which is now off by about two-thirds at $1 trillion. This year has been marked by a dire combination of macroeconomic issues affecting most of the financial markets and implosions at several major crypto projects.

Some crypto-related companies, like Coinbase and NFT platform Open Sea, have had to lay off thousands of workers. However, others, like crypto hedge fund Three Arrows Capital and crypto broker Voyager Digital, have collapsed and filed for bankruptcy.

Not All Crypto Investors Are Bullish Right Now

However, some venture capitalists have tapped their sizable war chests to invest in a market they see a robust future for. However, not all crypto investors are bullish on the market right now. David Siemer, CEO of crypto asset manager Wave Financial, told Reuters he sees signs that crypto firm valuations have come down from last year's sky-high valuations.

He expects things to "get a lot worse, noting that in the last cycle, those seeking funding felt the pain for about 12 months.