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VC Investments Fall, but Blockchain Space Gets 'a Second Wind'

VC Investments Fall, but Blockchain Space Gets 'a Second Wind' 101
Source: iStock/Marco Rosario Venturini Autieri

The future seems brighter for blockchain, as the speculation and overall market confidence have somewhat rebounded in 2019 from the crypto winter, finds CB Insights, a tech market intelligence platform. They note that market capitalizations of tokens and cryptocurrencies signal a renewed interest in the space, and though there is high uncertainty in the market, many new developments “have given the space a second wind.”

CB Insight’s report “Blockchain Trends in Review”, looked into the factors that created the current blockchain industry and what its near future might bring. And it starts off quite bleak. Some of the conclusion they’ve reached include:

  • tokens and cryptocurrencies are at a fraction of their peak market caps
  • corporate participation in blockchain has declined, there being only 96 corporate deals in 2019
  • a growing share of equity deals go to early-stage startups
  • whereas venture capital (VC) was once bypassed and millions of dollars were raised in the ICO (Initial Coin Offering) boom, now VC “accounts for much more than ICO funding, marking an end of the ICO era”
  • the U.S. Securities and Exchange Commission’s (SEC) strict position towards token offerings has further contributed to ICO’s near-death state
  • VC investment in blockchain has declined in 2019, from the USD 4.1 billion last year, to USD 1.6 billion it’ll get this year if this rate continues
  • challenges for VC include price volatility, regulatory setbacks, and scaling issues (especially with Bitcoin and Ethereum).

However, the report reminds that the volume and speculation of major currencies like Bitcoin and Ethereum have surged in recent months and adds other positive points such as:

  • there’s renewed corporate interest in the space, with major companies like Facebook, JPMorgan, and Visa entering the space
  • total market capitalization of cryptocurrencies has doubled since January 2019
  • though there is a decline in VC investments in blockchain, equity investment in 2019 “will likely surpass the totals seen in 2017, when there were fewer companies and arguably less bubble mania driving private deals”
  • startups are in a good position to help major organizations and companies join the space.

"Because the space is highly technical, startups are well-positioned to help large corporations and institutions enter the field. The concept of blockchain is only 10 years old, likely tilting the scale towards M&A [mergers and acquisitions] when corporates are deciding to “build versus buy.” Whether that newfound optimism will translate to a noticeable rebound in VC will be worth watching in 2019," according to CB Insights.

The report finds that Facebook’s Libra announcement was likely responsible for much of the new-found interest in the space. Creating a stablecoin for unbanked customers across the world, it drew support from major companies across industries, despite the ongoing regulatory hurdles.

Furthermore, despite recent negativity surrounding the space, such as tweets from Donald Trump, “the corporate interest is a huge vote of confidence for the blockchain space.” Tyler Cowen, a Bloomberg Opinion columnist and a professor of economics at George Mason University, wrote that “cryptocurrency is (probably) here to stay.” Mike Novogratz, founder and chief executive officer at Galaxy Digital, said that investors “got excited because of Facebook. They got excited because of Uber and Mastercard and Visa saying ‘we want to participate in the cryptocurrency world’”, adding that the project “completely legitimizes the idea of cryptocurrencies”, stands in the report.

Other findings in the report:

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Note: Blockchain deals included here are traditional VC and may omit purchased stakes in token sales. Source: CB Insights
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