The year 2023 witnessed a significant resurgence in the crypto industry, and now, venture investors are re-entering the scene. According to PitchBook’s report on Thursday, venture funding for companies associated with crypto reached $1.9 billion in the fourth quarter of 2023, indicating a 2.5% increase from the previous quarter. This marks the first instance of a rise in venture capital investments in crypto startups since the first quarter of 2022. This positive trend is particularly encouraging for crypto entrepreneurs who have faced challenges during the recent “crypto winter,” making fundraising a more challenging endeavor over the past couple of years.
In 2022, venture funding for crypto enterprises experienced a notable decline, primarily attributed to the surge in interest rates by major central banks. This prompted investors to shift away from riskier assets, including tech stocks and cryptocurrencies. The challenges faced by crypto ventures were further intensified by the substantial collapses of notable crypto companies such as Do Kwon’s controversial algorithmic stablecoin Terra and Sam Bankman-Fried’s FTX during that year.
Prominent venture funds such as Andreessen Horowitz, Sequoia Capital, and Tiger Global felt the impact of the decline in crypto deals. In instances like the collapse of FTX, some funds had to acknowledge a complete write-off of their investments. Discussing this trend, Le mentioned in a CNBC interview, “It’s no secret that investors have been increasingly investing, and now we are witnessing the tangible evidence in the data.”
Le asserted that crypto venture funding has reached its lowest point, attributed to the upturn in crypto asset prices and the enhanced public market valuations of companies in the crypto space, including Coinbase, Marathon Digital, and MicroStrategy. Over the past 12 months, the price of bitcoin has more than doubled, exceeding $52,000 per coin. Notably, Coinbase stock has experienced a substantial surge, witnessing an increase of almost 140% year-over-year.
Speaking to CNBC, Le highlighted the typical correlation between investments in private markets and the public markets. He noted that many publicly-traded crypto companies have seen positive trends in the last year, and this pattern is now evident in the private sector as well. However, PitchBook reported a 2.4% decline in the number of deals in the fourth quarter. Le clarified that this suggests a concentration of capital flowing into a select few startups within the crypto space, indicating a focus on the strongest players in the industry.
According to PitchBook, the prominent crypto ventures securing funding are predominantly centered on finance and technological solutions. These ventures often involve endeavors such as the tokenization of tangible assets like real estate and stocks on the blockchain, as well as the development of decentralized computing infrastructure. Noteworthy fundraising activities in the quarter included Swan Bitcoin and Blockchain.com, both crypto exchanges, securing $165 million and $100 million, respectively.
The most substantial transaction of the quarter involved a $225 million investment in Wormhole, a company specializing in open-source blockchain development platforms. Supported by investors such as Coinbase Ventures, Jump Trading, and ParaFi Capital, the funding propelled Wormhole to a valuation of $2.5 billion. Concurrently, Together.ai, a decentralized cloud platform specializing in large foundation models, secured $102.5 million in a Series A round led by Nvidia, Emergence, and Kleiner Perkins, reaching a post-money valuation of $463.5 million.
A significant portion of the heightened activity can be traced back to the increased interest in crypto from financial institutions, driven by the introduction of the first spot bitcoin exchange-traded funds (ETFs) in the U.S. toward the end of the previous year, as highlighted by Le. In a statement to CNBC, Le explained, “The ETFs got approved, there’s a lot of money, I think you’re going to see a lot of passive money flowing into bitcoin. In the U.S., you’ve got trillions of dollars from big funds and wealth advisors that did not invest in bitcoin traditionally and now they can.”
