Private equity investors are pouring billions of dollars into blockchain-based apps and platforms fuelled by crypto, new data show.
Venture capital investment in such projects totalled $10 billion globally in the first quarter of this year, following full-year totals for 2019, 2020 and 2021 of $3.7 billion, $5.5 billion and $28 billion.
The first quarter figure is the largest quarterly sum ever and more than double the level seen in the same period a year ago, according to data from Pitchbook.
The number of M&A deals involving crypto target companies is also ballooning globally as the buzz grows around the metaverse of virtual worlds and the so-called decentralised Web3.
There have been 73 deals sealed so far in 2022 with a combined deal value of $8.8 billion, according to Dealogic, versus 51 deals worth $6.8 billion for the whole of last year.
Yet there is suspicion of traditional venture investors within online developer communities pushing for decentralisation.
Many deep-pocketed venture capitalists find themselves forced to woo those developer communities behind potential targets, according to Alexandra Bertomeu-Gilles, risk manager at decentralised finance (DeFi) firm Aave.
“Some founders now … when they take money from investors, are creating agreements so that the investors don’t have an outsized say in the governance of the company, or they can’t overrule something that the majority of the rest of the community wants,” she said.
The new projects can range from crypto and non fungible token (NFT) exchanges to DeFi applications and token issuers.
The recent action is different from the past when venture investment levels tended to track the price of bitcoin, albeit with a short delay, according to Alex Thorn, head of research at blockchain-focused bank Galaxy Digital in New York.
Investment levels in crypto and blockchain-based apps have continued to grow during a bitcoin price slump this year – it’s down about 16% – as well as during another decline last summer, Thorn notes.
“This decoupling is demonstrative of investors’ disbelief that a prolonged bear market in digital assets is forthcoming, as well as the significant amount of dry powder held by funds seeking to allocate to the sector,” he wrote last week.
The VC crypto craze in 2022 has also coincided with a slump in the tech-heavy Nasdaq benchmark, which is down 21%.
- Reuters, with additional editing by George Russell