One way to understand how big crypto has become is to look at the prices of coins and at the industry’s market cap. But then when you check a few minutes or days later you might see a completely different picture because of the crypto industry’s volatility. In the last 10 days, bitcoin’s price dropped as low as $52,000 a coin, after hitting a record high of almost $69,000 in the run-up to bitcoin’s taproot upgrade being deployed. On the other hand, you could look at the market in a different way, and instead of worrying about prices and volatility, you could check out if accelerators and VCs are supporting early-stage crypto companies and if they are investing to help them grow and scale. In 2021 we saw an influx of major investment organizations entering the crypto world and so far this year has turned out to be the biggest year for investments in crypto startups. In my book, this is the most important factor on whether to invest in any market, especially in volatile crypto assets. As long as VC money keeps coming in and growing, I wouldn’t be worrying about volatility. Just buy what you can afford to lose, hold on to it and you’ll be a winner in the long run.
Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet. Please participate in our Crypto Wallet Survey, we could use your help. It’s seven simple multiple-choice questions about crypto wallets and you should be done in 60 seconds. The survey is completely anonymous.
Back in June, Techstars announced Launchpool Web3 Techstars Accelerator, a new program in partnership with Alphabit Fund to work with entrepreneurs that are building blockchain technology, tokenization protocols, and web3 applications. Entrepreneur First launched with Tezos, Entrepreneur First Web3, a program to attract new promising founders to build startups in the web3 space.
Techstars and EF are only a couple of examples that I’ve read about in the last few months that are trying to catch the crypto and web3 wave early on. This is an important trend that’s going to grow even more because money is being poured into the space. But more importantly, it will help the market mature and create positive spillover benefits to the wider crypto industry because it will lead to better products and companies being built.
On many different levels, 2021 has a stellar year crypto.
In the first nine months of 2021 crypto startups raised $15 billion in venture capital, five times what they raised for the whole of 2020. The total for the year so far is already up 384% compared to 2020’s 12-month total of $3.1 billion. In the third quarter, 12 crypto unicorns, startups valued at $1 billion or more, were born, a record.
In the third quarter of 2021 funding reached $6.5 billion, an all-time high, invested in 286 deals, with Coinbase Ventures leading the pack, being the most active investor.
In Q3, Coinbase Ventures made a record 49 investments, averaging a new deal around every 1.8 days. This is up from 28 investments made in Q2, and 24 in Q1. At the end of Q3 2021, Coinbase Ventures portfolio stands at over 200+ companies and projects.
When you compare the largest deals in 2020 with those of 2021, crypto deals are becoming bigger in 2021. To support this growth VCs are launching bigger funds. Earlier this year Andreessen Horowitz launched a $2.2 billion crypto fund, and many others are reserving dry powder for the industry, as investments in crypto startups are only set to become more competitive and larger in nature. Last week, Paradigm announced that it was starting a $2.5 billion venture-capital fund aimed at the next generation of crypto companies and protocols.
Crypto VCs have been very active for the last 2 years, investing a lot of money in Layer 1, Layer 2, DeFi, DEX, Cross-Chain, and NFT projects.
So far, in 2021 the big winners were:
- This year NFTs took flight. NFT funding skyrocketed to over $2 billion in 2021, with a growth rate of 6,523% over 2020s 12- month total. More than 90% of NFT deals this year have been early-stage. There were 46 deals to NFT startups in Q3’21, 3 of which were mega-rounds.
- Decentralized finance startups saw 191 equity deals in the first 9 months of 2021, up 57% from the 2020 total. Total funding in 2021 this year is at $2.1B, over 6x the amount raised in 2020.
- Crypto custody and wallet providers raised almost $4 billion in funding in 2021 so far, making up 26% of all dollars raised by crypto startups this year. Custody and wallet funding YTD is already up 333% from 2020’s year-end total.
- Crypto exchanges were the leading segment in the quarter, raising nearly $2 billion in venture funding, up from just $84 million raised in the third quarter of 2020.
Exchanges will likely remain at the center of the crypto universe because they have spectacular revenue generation capacity and are much more likely to expand into new industries, as well as acquire down the value chain.
There’s a growing appetite for crypto startups, especially those that are creating the tools to build a blockchain-based future.
I expect that we’ll see investors double-down on their investments, as more capital will be needed by their portfolio companies to capture the growing market. But the market is still very small. Even though more and more venture capital companies are investing in crypto startups, investments in the industry only account for 1% of the worldwide venture capital market. This poses a high level of risk but also shows how early we are and the huge potential for growth in the future. There are a number of reasons we will see the investment surge continue. The most important being we are ready, both ideologically and technically.
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