Continued Investor Demand: A Reflection on the Crypto Industry’s Growth and Maturity

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Continued Investor Demand: A Reflection on the Crypto Industry’s Growth and Maturity

The current total value of the cryptocurrency market is approximately $2 trillion. Both institutional investors and venture capital firms have arrived and show no sign of relenting.

BY GEORGE SALAPA

2021 has seen an explosionin cryptocurrencytrading and ahuge influx of institutional and privateinvestment in the crypto space.

As of August 2021, venture capitalfunds had invested approximately$17 billion into cryptocurrency andblockchain companies, according todata from PitchBook. This is a recordfigure, surpassing the total figure for2020.

In August alone, there have beenseveral significant capital raises.CoinDCX—the India-based cryptocurrencyexchange—raised $90 millionin a Series C funding round, bringingits valuation to $1.1 billion. CoinDCXis the first Indian crypto exchangeto become a “unicorn,” and this fundinground came just eight monthsafter its $13.9 million Series B raise.The Helium Network—the startupbehind crypto-powered decentralizedwireless networks—announceda $111 million raise in a token sale ledby Andreessen Horowitz, and digitalasset trading platform FalconX alsoreached unicorn status, following a$210 million Series C raise at a $3.75billion valuation.

In July 2021, FTX—the Antiguabasedcryptocurrency derivativesexchange, which offers futures, leveragetokens and OTC trading—raised

$900 million from over 60 investors.This included venture capital firmsParadigm and Sequoia, hedge fundsand the private equity group ThomaBravo. It was the largest privateequity deal in the crypto industry’shistory, valuing the business at $18billion—one of the largest rounds offinancing for a digital assets startup.

In May 2021, Block.one —thePeter Thiel, Alan Howard and LouisBacon backed blockchain softwarefirm—pumped $9.7 billion into a newcryptocurrency exchange subsidiarycalled Bullish Global. Even excludingBlock.one’s capital injection, there was$6.2 billion of private funding in thedigital asset industry in Q2 of 2021—a90 percent increase quarter-overquarter.

Private investors, like venture capital funds, have become particularly promiment forces in the crypto space.

Despite a turbulent market in May and June, due to increasing scrutiny from global regulators and politicians, investor demand in the sector has remained strong. This reflects the crypto industry’s growth, mature development and unique investment opportunities.

In their infancy, cryptocurrencies like Bitcoin appeared to be the antithesis of assets that institutional investors typically invested in. However, 2021 has seen more institutions diversifying their portfolios and allocating into to a wide variety of digital assets companies. The growth potential of digital assets is now universally recognized.

According to a recent Fidelity Digital Assets study, seven in 10 institutional investors expect to buy or invest in digital assets in the near future, and over half of the 1,100 participants already owned such investments.

One factor behind this increase in capital deployment could be attributed to the movements of leading asset managers. When the likes of BlackRock and Morgan Stanley Investment Management add cryptocurrencies to their balance sheet, it sparks interest amongst the wider financial community, and financial advisors and investors begin to explore ways of gaining exposure to the market. Private investors, like venture capital funds, have become particularly prominent forces in the crypto space. Equity-type investments have set new records with 10 of the 12 largest financing rounds ever completed by firms in the crypto market occurring in 2021, totaling just under $3.9 billion.

As Xinshu Dong, a partner at venture capital fund IOSG Ventures, said: “Many see the crypto market as the one with the most growth potential, justified by a much more frictionless and transparent way of business.”

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Despite regulatory debate and short-term market volatility, venture capital funds have remained unfazed. They have identified the prospect of high-risk, highrewards.

Fear of missing out (FOMO) must also be acknowledged. Venture capital funds investing early have enjoyed significant returns. The NFT trend has arguably exacerbated this sentiment. Investors see NFTs’ potential to revolutionize arts and culture—akin to how the likes of Instagram disrupted the media sector.

According to PitchBook research, Barry Silbert’s Digital Currency Group (DCG) was the most active U.S. investor in the crypto space. DCG invested in 111 startups. Coinbase Ventures was the second most prolific, backing 79 startups, followed by Pantera Capital with 74, Blockchain Capital with 68, Andreessen Horowitz with 58 and Polychain Capital with 51.

The current total value of the cryptocurrency market is approximately $2 trillion. Both institutional investors and venture

capital firms have arrived and show no sign of relenting with traditional allocators increasingly looking to gain exposure and bigger deals occurring.

Having successfully navigated the turbulence in May and June, the outlook for crypto markets is bullish. We expect more deals, large capital raises and continued investor demand. Our long-term outlook for the asset class remains bullish, and we expect to see new all-time highs for Bitcoin and Ethereum in the near future (Q4 ’21 – Q1’22).

WORTH.COM SEPTEMBER 2021

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