The exchange value of Bitcoin, the original and still dominant cryptocurrency, has plunged by almost 50% this year to $24,765 as of mid-August and is down by around 70% since its high of $64,400 high set in November last year.
The rest of the cryptocurrency market, made up of hundreds of alt coins and token of varying significance, has followed the same trend to slump since the beginning of the year as investors have fled riskier assets and classes.
Sceptics of the innovative, still developing cryptocurrencies asset class have revelled in the crypto market crash, calling time not only of the speculative bubble that saw prices soar to unheard of new heights last year but on cryptocurrencies themselves. But more balanced observers and sector analysts see things differently.
While most acknowledge the crypto market, and not for the first time, blew up into a bubble last year, they carefully separate that bubble from the future potential of the technology itself. Most expect the market to now recalibrate and come back stronger, having shed much of the speculative frenzy and “get rich quick” hype and, let’s be frank, scams, that have dogged the evolution of cryptocurrencies and the end goal of integration into mainstream financial markets.
Cryptocurrencies with no practical use case outwith speculative trading, a description that can even be applied to bitcoin whose lack of scalability limits its role in day-to-day financial transactions, may well genuinely have had their time. But there are cryptocurrencies with valid use cases that could well still have a bright future. Ether, the cryptocurrency associated with the popular and well-used smart contracts platform Ethereum, and XRP, the cryptocurrency used to pay for use of the Ripple blockchain-based settlements system, are two prominent examples.
But it is expected to take time for cryptocurrencies to regain public trust after tens of billions of dollars worth of capital, much of it belonging to small, inexperienced investors/speculators, were wiped out this year as valuations plunged.
Venture Capital investors retain faith in the future potential of cryptos
However, despite the challenges the cryptocurrency sector faces, there is growing evidence the venture capital industry is choosing to retain its faith in its long term prospects. A slow start to 2022 VC funding for cryptocurrency initiatives as prices started their downward plunge looked ominous. Over the first half of the year, VC funding for cryptocurrency companies dropped by 25.6% on 2021 levels to $9.3 billion.
However, the VC cash has started to flow again over the past couple of months and has done so to such an extent that 2022 funding, says J.P. Morgan analyst Steven Alexopoulos, now appears on course to better the record $32.4 billion brought in by companies last year. As of late July a total $18.3 billion had been raised from VC investors by cryptocurrency projects.
Fortune magazine lists some of the biggest 2022 VC investments into cryptocurrency and blockchain projects in a recent edition of its Term Sheet newsletter, including:
- Fireblocks, a digital-asset infrastructure startup that has since partnered with the likes of BNP Paribas, raised $550 million at a valuation of $8 billion.
- Yuga Labs, the company responsible for Bored Ape Yacht Club NFTs, raised $450 million at a $4 billion valuation.
Other start-ups in the cryptocurrencies/blockchain space are pushing ahead with the research and development they believe will establish them as sustainable enterprises over the coming years.
VC interest and investment in cryptocurrencies and blockchain projects demonstrate faith in the technology’s future
A recent report by the international consultancy firm Deloitte also found that it’s not only VC investors that retain faith that the crypto sector will bounce back. It found:
- 75% of U.S. retailers plan to accept crypto payments within the next two years.
- More than half of large retailers are building the required infrastructure to integrate digital currencies into their services.
- 64% of merchants said that their customers have expressed interest in using crypto for payments.
Continuing enthusiasm from Venture Capital firms is not by chance and will be heavily based on findings such as those presented by the Deloitte report. The question becomes how to put this VC money to work in a bear cycle.
Infrastructure projects are likely to be a major focus during the expected period of reduced attention on cryptocurrencies. TechCrunch’s Chain Reaction newsletter, which follows developments in cryptocurrencies and blockchain, also highlights the likelihood of investment in more insular consumer projects that are further disconnected from the broader worlds of crypto but expose users to synthetic economies, wallets and digital goods, an arena served particularly well by crypto-infused games.
Chain Reaction also sees a lot of potential in the VC cash targeting crypto applications in gaming:
“Gaming does seem like a great consumer beachhead for crypto and I’d expect plenty of these dedicated crypto funds to dump a significant quantity of their funds into studios and platforms pursuing this. There are a lot of substantial challenges, including generally negative user sentiment and getting platform buy-in — given that NFTs are still treated with a high-degree of hostility by app stores and gaming platforms.”
NFTs are another area of significant interest and not just the blockchain-based technology’s application in the digital art world, which it has become most famous for. NFT tech can also be used for applications such as intellectual property, title deeds and medical records, to name just a few of those being explored.
Last week The NFT Marketplace, announced that it has successfully audited its testnet platform for ‘minting’, ‘storing’ and ‘selling’ of NFTs. Following 9 months of coding across 3 contingents, the company has reached this significant milestone exactly on time, as per its initial ‘Roadmap’ agreed during 2021.
The company will now execute its pre-arranged data transfer for all file data to move to its secure self-hosted space via its partnership with Siteground. The success of the migration strategy will be verified this month.
“This successful audit after months of building the platform has now put us exactly where we want and expected to be, when we produced the ambitious roadmap back in 2021. This milestone will also support the simultaneous Public Listing we have planned during 2022 as the next steps to be the ‘Ebay of the NFT world’ is to increase our cap ex significantly” stated CEO Ben Quick.
Andrew Pritchard MSc DipPFS, a non-executive board member of The NFT Marketplace Ltd added:
“Going public is a vital step in The NFT Marketplace Ltd’s growth plan and our timing could not be better given the increased adoption of NFT’s. Working with Limetree on this project is a massive plus to ensure all regulations are met as we work towards NFTM being public”.
Follow the money
Venture Capitalist investors don’t always get it right when it comes to new technologies to finance but they do more often than not. That’s what allows them to continue to raise billions of dollars in investment capital from wealthy individuals and institutional investors.
And while they may not make money on every individual investment, VCs rarely get it completely wrong about an entire sector. The fact that more venture capital cash than ever before is flowing into cryptocurrencies and blockchain technology in 2022, despite the plunge in the value of most assets in the sector, can be taken as a major vote of confidence.
Venture Capitalists appear convinced the current “crypto winter” will bloom into spring over the coming years. Much like the online economy did following the bursting of the dotcom bubble over twenty years ago now.
