Venture Capitalists' Crypto Bets: How Many Took The Plunge?

Venture capitalists have been investing in crypto and blockchain technology businesses, with a record-breaking amount of money being put into crypto startups. In 2021, venture capital firms invested \$30 billion into crypto, according to Bloomberg, with other sources citing the figure to be as high as $33 billion. This is nearly four times the previous record of $8 billion in 2018. Crypto companies such as Sky Mavis, DapperLabs, and MoonPay have scored multi-billion-dollar valuations, and the market for NFTs is also set to hit a record high.

Crypto startups raised up to $33 billion in 2021

Crypto startups raised a significant amount of venture capital funding in 2021, with estimates ranging from $17 billion to $32.8 billion. Bloomberg reported that venture capital funds poured a record-breaking $30 billion into crypto investments in 2021, according to PitchBook data. This amount is nearly four times the previous record of about $8 billion set in 2018. The massive inflow of funding has minted at least 47 "unicorns" in the crypto market, referring to companies with valuations above $1 billion.

The crypto and blockchain sector has been a significant beneficiary of venture capital investments. Blockchain-based projects received over $4 billion in VC funding in the second quarter of 2021 alone, according to CNBC. This trend continued in the third quarter, with major cryptocurrency derivatives platform FTX securing a record $900 million in Series B funding, pushing its valuation to $18 billion.

The surge in VC investment in crypto can be attributed to several factors. One reason is the increasing consumer and institutional demand for cryptocurrencies. Despite short-term price volatility, VC firms remain bullish on crypto's future as a mainstream asset class. Additionally, the decentralised nature of blockchain technology and its potential to revolutionise financial markets have attracted investors seeking to be part of the new wave of disruption in decentralised finance.

The crypto industry's maturity has also played a role in attracting VC investments. Crypto startups have become highly profitable, drawing growth-stage capital and late-stage funding. The average vintage size of crypto funds doubled in 2021 compared to 2020, reaching approximately $300 million. Early-stage crypto firms gained more attention towards the end of the year, accounting for over 60% of all crypto VC investments in the fourth quarter.

The influx of VC funding has had a significant impact on the crypto market. It has contributed to the rapid growth of crypto startups, the emergence of "unicorn" companies, and the increasing diversification of the industry. With the maturing of the crypto space, more companies are expected to enter the public markets, providing investors with a broader range of investment opportunities in the coming years.

Coinbase Ventures was the most active investor in Q3 2021

Venture capital firms have been investing in crypto and blockchain technology in increasing amounts. In 2021, VC firms invested a record-breaking $30 billion into the crypto space, with $7.2 billion coming from US venture capital. This amount is nearly four times the previous record of $8 billion in 2018.

Coinbase Ventures, the venture capital arm of the cryptocurrency exchange Coinbase, has been one of the most active VC investors in the crypto space. In the third quarter of 2021 (Q3 2021), Coinbase Ventures made a record 49 investments, averaging a new deal every 1.8 days. This was an increase from 28 investments in the second quarter and 24 in the first quarter. As of Q3 2021, Coinbase Ventures had a portfolio of over 200 companies and projects.

The activity of Coinbase Ventures in Q3 2021 reflects the overall trend of increasing VC investment in the crypto and blockchain space. With its accelerated pace of investments, Coinbase Ventures contributed to the record-high investment levels in 2021 and played a role in the maturation and institutional adoption of the crypto industry.

Crypto exchange FTX led all equity deals in Q3 2021

Crypto exchange FTX, founded in 2019 by Sam Bankman-Fried and Gary Wang, raised $900 million in July 2021, the largest private equity round in the industry's history. The company was valued at $18 billion, with over 60 investors participating in the fundraise, including Paradigm, Sequoia Capital, and Softbank. This massive injection of capital reflected FTX's rapid growth and success in the cryptocurrency market.

In the third quarter of 2021, FTX reported impressive results, with a 512% increase in average daily volume, a peak total volume of $807 million in a 24-hour period, and a 52% increase in its user count. The company's US affiliate, FTX US, also demonstrated strong performance, maintaining its ranking as the #1 digital asset exchange in the US for liquidity throughout 2021.

The success of FTX in Q3 2021 can be attributed to several factors, including its user-friendly platform, advanced functionality, and diverse investment products. FTX differentiated itself from competitors by offering inexperienced traders access to sophisticated investment tools, such as options, futures, and leveraged tokens. The company's focus on global expansion and strategic acquisitions, such as its purchase of Blockfolio, also contributed to its rapid growth.

FTX's strong performance in Q3 2021 solidified its position as a leading cryptocurrency exchange and set the stage for its continued expansion and influence in the market. However, it's important to note that FTX later faced significant challenges, ultimately leading to its collapse in 2022 due to fraud and financial mismanagement.

US venture capital accounted for up to $7.2 billion in 2021

Crypto and blockchain technology businesses attracted a significant influx of venture capital investment in 2021, with US-based firms playing a prominent role. According to Bloomberg, US venture capital accounted for up to $7.2 billion of the total investment in this emerging sector. This substantial contribution underscores the growing interest in cryptocurrency and blockchain technology among US investors.

The $7.2 billion figure represents a significant proportion of the overall venture capital investment in crypto and blockchain during 2021. Various sources provide insights into the magnitude of this investment globally. PitchBook, a data provider, estimated that venture capitalists invested more than $27 billion in crypto startups in 2021, surpassing the previous 10 years combined. This remarkable influx of capital highlights the burgeoning interest in the crypto industry, with investors recognising its potential for substantial returns.

The total amount of venture capital invested in crypto and blockchain technology startups in 2021 was substantial, with estimates ranging from $25 billion to $32.8 billion. This influx of capital exceeded the previous record of $8 billion in 2018, showcasing the accelerating interest in the crypto industry. The surge in investment can be attributed to investors funding a diverse range of projects, from blockchain startups to non-fungible tokens (NFTs) and decentralised finance (DeFi) initiatives.

US venture capital firms were prominent participants in this investment boom, with their contributions making up a significant proportion of the overall investment in the crypto industry. The $7.2 billion attributed to US venture capital includes notable investments in companies such as Sky Mavis, DapperLabs, and MoonPay, all of which achieved multi-billion-dollar valuations. These investments underscore the confidence that US venture capitalists have in the potential of the crypto industry and their willingness to allocate substantial resources to this emerging sector.

The substantial investment from US venture capital firms in 2021 had a significant impact on the crypto industry. It contributed to the record-breaking growth in the sector, with crypto and blockchain startups attracting a considerable amount of dry powder. This term, "dry powder," refers to the substantial financial resources available for investment, and it resulted in the emergence of numerous "unicorns" in the crypto market—startups with valuations above $1 billion. The influx of capital from US venture capitalists, along with other investors, played a pivotal role in fostering innovation, growth, and competition within the crypto ecosystem.

Crypto VC investments in Q4 2021 were mostly in early-stage companies

In 2021, seven out of ten of the biggest early-stage VC investments in crypto and blockchain occurred, with a total value of $29.4 billion and 1,686 reported deals. This was a fivefold increase compared to 2020, with PitchBook data showing that venture capital firms invested $6.6 billion in 793 deals.

The early-stage funding environment in 2021 was characterized by large funding rounds for crypto derivatives exchanges, crypto lenders, software developers, and fintech firms. For example, FTX raised $1 billion in July, followed by $420.69 million in October, while Celsius Network (CEL) raised $750 million in November.

The crypto VC landscape cooled in 2022, with PitchBook's Q4 2022 Crypto Report showing a drop to $2.5 billion in VC activity—the lowest amount since Q4 2020. This was due in part to the macroeconomic environment, as tighter monetary and fiscal policies reduced investors' risk appetite.

However, crypto VC investments in Q1 2024 rebounded, with $2.52 billion raised across the crypto and blockchain sectors, a 25% increase from Q4 2023. This uptick in investment activity was driven by positive sentiments around decentralized finance (DeFi) and increasing demand for the biggest cryptocurrency post-SEC spot bitcoin ETF approvals in the U.S.

Despite the overall decrease in VC activity in 2022, crypto-focused early-stage venture funds still had dry powder from 2021 and 2022 to invest in 2023 and 2024.

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