Despite the drizzly weather and depressed crypto prices, there was a sense at the recent Nordic Fintech Week in Denmark that we are witnessing history in the making.
Cryptos, blockchain and fintech are attracting a huge and growing share of venture capital (VC) funds. That number hit a mind-boggling $25.2 billion (R455.9 billion) in 2021, up 800% since 2020. And things are just getting started.
Even though the ‘doomers and gloomers’ like to hammer away at the bitcoin price’s never-ending nosedive, this ‘crypto winter’ is nonetheless expected to bring in $31 billion (R560.8 billion) in VC investment for 2022, according to Fintech expert, investor and startups advisor Mike Sigal.
“Venture Capital is an industry that generates outsized returns from 99% failure rates,” said Sigal.
“To do this, the industry has developed unique ways of investing in disruptive innovation over the last 80 years.”
There is plenty to learn by exploring just how VCs do that. And what they’re doing now is investing in crypto-related technology.
That breaks down into:
- Blockchain technology – the backbone of everything crypto.
- NFTs (non-fungible tokens), which are far more than simply high-priced pieces of artwork and are also an integral part of the metaverse.
- The metaverse (a bunch of technologies that include virtual and augmented reality)
- Smart contracts, and all the wonderful things that can be done with them (such as executing financial transactions without human intervention).
- Decentralised finance (DeFi) – a growing marketplace where you can lend, borrow, earn interest and transact without having to go through a credit committee or human agent.
- Web3 – the use of blockchain technology to store data in a decentralised fashion. Our current version of the internet is Web2 which is owned by tech giants like Facebook and Google. Web3 is more private, where the user owns their own digital footprint and will be able to monetise that.
The number of funding deals in the above technologies is projected to reach 1 842 in 2022, up from 1 312 in 2021.
The funding deals keep coming
New VC deals for crypto companies continue to pour forth. For example, the FTX crypto exchange was reportedly in talks just a few days ago to raise $1 billion in funding, while the company is valued at an astonishing $32 billion, reported CNBC.
Crypto data firm Messari just raised $35 million in a Series B round. The company turns blockchain data into standardised reports.
BlackRock, the world’s largest asset manager, launched a private trust in August to give institutional clients direct exposure to bitcoin.
In August, we were well into the supposed ‘crypto winter’ and yet the world’s most influential investment management company decided to bet on bitcoin, which is in itself a bet on the unrequited institutional appetite for this new digital asset.
The metaverse
Right now, the metaverse is a faraway concept – a vision of intermingling reality with the digital world. No one is entirely sure how that will look right now – will we all wear virtual reality goggles? But VCs are certain of one thing: This is going to depend heavily on blockchain, tokens, and NFTs.
Funding in the metaverse skyrocketed in 2021 when Facebook changed its name to Meta and announced its vision of the metaverse. By September 2022, the number of funding deals closed for metaverse startups and companies is already higher than all of 2021.
Online games
Online games have welcomed NFTs and tokens with open arms.
By using NFTs, users can own entirely unique items within the game. Connecting to a blockchain allows users to easily trade tokens, making it easy for developers to monetise their games.
The online games market global revenue was at $152 billion in 2019, Sigal said at his presentation. As a comparison, the music industry was barely a third of that with a value of $57 billion.
Mega-corporation adoption of blockchain technology
It’s hard to find a single mega-corporation that hasn’t dipped its toes into blockchain, crypto, metaverse, or the NFT space.
Luxury jewellery maker Tiffany & Co launched an NFT collection of 250 CryptoPunks – one of the most popular NFT collections – that are connected to a real-life pendant.
The project sold out in 22 minutes and raised over $12.5 million in ETH, reported Blockworks.
That was also back in August, deep into the supposed crypto winter.
Atari, Disney, Gucci, McDonald’s, Coca-Cola, Amazon, Shopify, Netflix, Google, and countless other mega-corporations are just a handful of the major companies that have taken some interest in crypto, blockchain, the metaverse, or NFTs.
Nike has made over $185.3 million in NFTs. Users buy sneakers and have a metaverse/NFT version of it as well to show that they are the unique owner of that pair of sneakers. Think of it as a certificate of authenticity.
Andreessen Horowitz
Andreessen Horowitz, one of the world’s most influential VC firms, raised a $4.5 billion crypto fund in May. By August, it decided it was going to go all in on betting on crypto, to “break up the excessive concentration of Big Tech power”, reported the Financial Times.
That Big Tech Power probably refers to the five companies who control 43% of internet traffic – Netflix, Google, Amazon, Meta (Facebook), Microsoft and Apple.
The VC firm was “seeking to hone a new investment strategy built around cryptocurrencies and digital tokens”, the Financial Times reported.
Blockchain is here to stay
Sigal’s talk at Nordic Fintech Week was not the only one that highlighted just how deeply this technology has penetrated the business world.
Sandra Ro, CEO of the Global Blockchain Business Council, said a quick search for “blockchain jobs” on LinkedIn brings up over 50 000 results. The same search a few years ago brought up only a few hundred.
Blockchain is a thing. It’s not just a fad.
Interest in it is exploding, and it isn’t going away. And Sigal’s final message was unambiguous: Companies that don’t jump on the bandwagon now will miss an enormous opportunity.
R Paulo Delgado is a crypto writer with an eye for the bizarre and the human stories behind the always fascinating leaps and stumbles of this new asset class.
