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Crypto had a big bounceback year in 2023. Now, venture investors are returning.
Venture funding for crypto-related companies in the fourth quarter of 2023 totaled $1.9 billion, a 2.5% increase from the prior quarter, PitchBook said Thursday. It marks the first time that venture VC investments in crypto startups have risen since the March quarter of 2022.
It’s a welcome stat for crypto entrepreneurs who’ve been bruised by the last couple of years of the so-called “crypto winter,” which made it much harder for founders to raise money.
Venture funding for crypto firms slumped significantly in 2022 after a rise in interest rates from major central banks led to a flight of investors from riskier assets like tech stocks and cryptocurrencies.
Problems for crypto ventures were compounded that year by major collapses of crypto companies like Do Kwon’s controversial algorithmic stablecoin Terra and Sam Bankman-Fried’s FTX.
Major venture funds like Andreessen Horowitz, Sequoia Capital, and Tiger Global were bruised by the downturn in crypto deals. In some cases, like the fall of FTX, funds had to write off their entire stake.
“It’s no secret investors have been writing more checks,” Le said in a CNBC interview. “Now we’re starting to see it in the data.”
Le said that crypto venture funding has bottomed with a rise in crypto asset prices and public market valuations of crypto-related companies such as Coinbase, Marathon Digital, and MicroStrategy.
In the past 12 months, bitcoin has more than doubled in price and is now worth over $52,000 apiece. Coinbase stock has similarly surged, up nearly 140% year-over-year.
“Generally a lot of times we see there’s a correlation between investments in private markets and the public markets,” Le told CNBC. “There’s a lot of publicly-traded crypto companies that are up in the last year, and we’re starting to see on the private side that trend as well.”
PitchBook said the number of deals declined 2.4% in the fourth quarter, however. Le explained this means that the strongest startups are getting the investments. “There is a little bit of concentration of capital going into fewer companies in the crypto space,” he said.
PitchBook noted that the most notable crypto ventures receiving funding focus on finance and technology solutions, such as the tokenization of real-world assets like real estate and stocks on the blockchain, and decentralized computing infrastructure.
Notable fundraises during the quarter included crypto exchanges Swan Bitcoin and Blockchain.com, which raised $165 million and $100 million, respectively.
The quarter’s largest deal was a $225 million investment in Wormhole, an open-source blockchain development platform company, backed by the likes of Coinbase Ventures, Jump Trading, and ParaFi Capital, at a $2.5 billion valuation.
Meanwhile, Together.ai, a decentralized cloud platform for large foundation models, raised $102.5 million in a Series A round led by Nvidia, Emergence, and Kleiner Perkins, at a post-money Valuation of $463.5 million.
Much of the activity can be attributed to the wave of interest in crypto from financial institutions following the launch of the first spot bitcoin exchange-traded funds (ETFs) in the U.S. late last year, Le said.
“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,” Le told CNBC.
“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.”