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Last year was impressive for blockchain startups, as research by CB Insights found that venture capital funding reached new heights every quarter of 2021. According to CB Insights’ “The State of Blockchain in 2021The report shows that global blockchain startups received $25.2 billion worth of venture capital funding last year, up 713 percent from $3.1 billion in 2020.
The report also found that the U.S. led the way in financing deals in the fourth quarter of last year, generating $6.26 billion for 157 deals. The document states that global growth is driven by increased consumer and institutional demand for crypto-related products and services.
Venture capital funding focuses on crypto adoption
CB Insights senior analyst Chris Bendtsen told Cointelegraph that CB Insights’ report contains aggregated data from private marketing dollars from the more than 3,000 blockchain and cryptocurrency companies the firm regularly tracks. Bendtsen further explained that while the title of the report mentions blockchain, this is an overarching category that covers cryptocurrencies, non-fungible tokens (NFTs), enterprise blockchains, and decentralized finance (DeFi). Bendtsen noted that most of the venture capital funding mentioned in the report was allocated to cryptocurrency-focused startups. The report states:
“The $100M+ giant rounds (valued at $100M+) are the driving force behind the record funding year for blockchain. The 59 giant rounds in 2021 represent only 5% of total deals but 60% of total funding .. The biggest big rounds go to cryptocurrency exchanges, brokerages, NFTs, games and payments.”
According to the report, $1 out of every $4 in funds goes to cryptocurrency exchanges and brokerages, which is also equivalent to a quarter of total global blockchain funding in 2021. Bendtsen said that while the largest trade flow went to major cryptocurrency exchanges such as FTX — which was ranked as the second-largest equity trade by brokerages and exchanges in the fourth quarter of 2021 — country-specific exchanges have Funding is also increasing.
For example, CoinSwitch Kuber, one of the largest crypto trading platforms in India, was ranked 4th in the highest equal trades for brokerages and exchanges in Q4 2021, generating more than $260M in recent Series C funding“Based on these findings, it is clear that we are seeing the globalization of cryptocurrencies as more country-specific exchanges are raising impressive rounds,” Bendtsen said.
Bendtsen further noted that global venture capital investment in cryptocurrency custody and wallet providers reached $6.3 billion last year. “In early 2021, a lot of money went to consumer-driven exchanges, but later in the year there was a shift, with major funding rounds going to crypto custody providers and custodians,” he said.
For example, New York Digital Investment Group (NYDIG) ranked the top equity deal in the custody and wallet provider category in Q4 2021. In December 2021, an institution specializing in Bitcoin (bitcoin) financial services gained $1 billion equity investment led by WestCap Group. Digital asset custody platform Fireblocks ranks directly under NYDIG Sequoia Capital raises $550 million.
Fireblocks CEO Michael Shaulov told Cointelegraph that he believes investors are paying more attention to custody and wallet providers, as these are the biggest barriers to institutional participation. “Having a direct custody solution and technology that can plug into the crypto capital market and make a difference is a game changer for businesses and individuals alike,” he said.
“Our investors see us as the shovel of the crypto industry. This includes everything from direct custody wallets and settlement networks to compliant integrations with Chainalysis and Elliptic, and access to staking providers.”
Regarding the company’s latest funding round, Shaulov said Fireblocks plans to expand its offerings, including securing high-value transactions around DeFi and NFTs.This is important, especially now, because of the sheer volume of scams and fraudulent activities on the web The DeFi and NFT space has increased.
While criminal activity within the NFT space has begun to unfold rapidly, the CB Insights report found that funding allocated to NFT startups has grown 130-fold. In 2020, NFT startups received $37 million in venture capital funding, reaching $4.8 billion by 2021. “Games, marketplaces and infrastructure are the top three NFT categories driving the funding boom,” the report emphasized.
Animoca Brands ranked first by number of companies in the fourth quarter of 2021, having made at least 49 investments in blockchain projects last year, according to CB Insights. Yat Siu, co-founder and executive chairman of Animoca Brands, told Cointelegraph that NFTs and blockchain gaming in general were the main drivers of funding growth last year:
“We have always believed that NFTs, especially games, are the key to mass blockchain adoption, and I think what happened in 2021 strongly suggests that this thesis will be realized in 2022. Interestingly, in 2021, many new Blockchain users are entering the crypto world not because of cryptocurrencies, but because they are looking to acquire NFTs.”
Traditional VC interested
In addition to the flow of funds, Bendtsen also pointed out that the CB Insights report found that more traditional investors began to show interest in blockchain startups last year:
“During 2021, Andreessen Horowitz jumped ship to become a savvy currency investor. They are one of the largest venture capital firms in the world and announced last June a cryptocurrency-focused Focused huge funds.”
As previously reported by Cointelegraph in June 2021, the Silicon Valley venture capital firm Launched “Crypto Fund III,” a $2.2 billion venture fund co-led by Andreessen Horowitz general partners Chris Dixon and Katie Haun. According to a CB Insights report, Andreessen Horowitz was named the third-largest blockchain investor in 2021, behind Coinbase Ventures and China AU21. “Our data shows that Andreessen Horowitz invested in 46 blockchain startups last year, ranking third among all investors, including crypto-focused funds. This shows that we are seeing more and more traditional companies entering the crypto space,” Bendtsen said.
While this may be the case, Siu noted, Andreessen Horowitz has a much longer history in blockchain investing.For example, venture capital firms Invested in blockchain company Dfinity in 2018So, Siu said that while Andreessen Horowitz is no stranger to the space, the company is indeed ramping up its investments in Web3 startups in 2021.
“Obviously, other major investors like A16z and Sequoia China understand the huge potential of Web3 and the value that blockchain applications can bring, and they are investing accordingly,” he said. Given this, Siu believes that more high-profile venture capitalists and companies will continue to invest in blockchain startups, especially those using NFTs to innovate.
Will cryptocurrency price volatility affect funding?
While the recent growth of blockchain startups has been impressive, crypto price volatility and unclear regulations could present challenges for companies looking to raise capital in the future. For example, US inflation rises May further affect the price of Bitcoin. Also, Regulations around NFTs are unclear Could be bad for new companies entering the space.
While these challenges should be carefully considered, Bendtsen explained that none of the recent data generated from CB Insights suggests any kind of slowdown in funding. “The truth is that these investors see cryptocurrencies as a long-term investment. Therefore, I don’t think today’s lower cryptocurrency prices will affect future startup capital.” Shaulov added that he believes the consensus around cryptocurrency regulation around the world will There will be more and more, which will ultimately drive retail and institutional adoption.
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