Cryptocurrency VC funding increases for the first time in two years as Bitcoin rises

In 2023, cryptocurrencies made a strong recovery. Now, venture investors are coming back.

Pitchbook announced Thursday that venture funding for crypto-related companies totaled $1.9 billion in the fourth quarter of 2023, an increase of 2.5% from the previous quarter. This is the first time since the fiscal year ending March 2022 that venture VC investment in virtual currency startups has increased.

This is a welcome statistic for crypto entrepreneurs who have been hurt by the so-called “crypto winter” of the past few years, which made it extremely difficult for founders to raise capital.

Venture funding for crypto companies fell sharply in 2022 as rising interest rates from major central banks drove investors away from riskier assets such as tech stocks and cryptocurrencies.

In the same year, the problem of crypto ventures was further exacerbated by the large-scale failures of crypto companies such as Do Kwon's controversial algorithmic stablecoin Terra and Sam Bankman Freed's FTX. .

Major venture funds such as Andreessen Horowitz, Sequoia Capital and Tiger Global have been hit by the downturn in crypto trading. In some cases, like the collapse of FTX, funds had to write down their holdings entirely.

“It's no secret that investors are writing more checks,” Lee said in an interview with CNBC. “Now we're starting to see that in the data.”

Lee said that the rise in crypto asset prices and public market valuations of crypto-related companies such as Coinbase, Marathon Digital and MicroStrategy has bottomed out funding for crypto asset ventures.

The price of Bitcoin has more than doubled in the past 12 months and is now worth more than $52,000 each. Coinbase's stock price has similarly skyrocketed, rising nearly 140% year-over-year.

“In general, we often see a correlation between private market and public market investments,” Lee told CNBC. “Many publicly traded crypto companies have grown over the last year, and we are starting to see this trend on the private side as well.”

However, the number of deals fell 2.4% in the fourth quarter, according to Pitchbook. This means the strongest startups are receiving investment, Lee explained. “In the crypto space, there is a bit of a concentration of capital in a few companies,” he said.

PitchBook reports that the most notable crypto ventures receiving funding focus on financial and technology solutions, such as the tokenization of real-world assets such as real estate and stocks on blockchains and decentralized computing infrastructure. He pointed out that he was correct.

Notable funding in the quarter included crypto exchanges Swan Bitcoin and Blockchain.com, which raised $165 million and $100 million, respectively.

The quarter's largest deal was a $225 million investment in Wormhole, an open source blockchain development platform company backed by Coinbase Ventures, Jump Trading, ParaFi Capital and others, at a valuation of $2.5 billion.

Meanwhile, Together.ai, a decentralized cloud platform for large-scale foundational models, raises $102.5 million in a Series A round led by Nvidia, Emergence, and Kleiner Perkins, with a post-money valuation of $463.50 It was a million dollars.

Lee said much of this activity is due to financial institutions' increased interest in cryptocurrencies following the launch of the first spot Bitcoin exchange-traded fund (ETF) in the U.S. late last year. He said that it is possible.

“ETFs have been approved and there's a lot of money. There's going to be a lot of passive money flowing into Bitcoin,” Lee told CNBC.

“In the U.S., we're getting trillions of dollars from big funds and wealth advisors who previously didn't invest in Bitcoin, but now they can.”