When venture capitalists start throwing tens of billions of dollars at a particular thing, investors tend to take notice. Because it means that “thing” is on the cusp of exploding into a major area of growth with a potential wellspring of profits just waiting to be tapped.
And now, venture capitalists have their sights set on cryptocurrency, with more money invested in crypto and blockchain tech companies in 2021 than in all previous years combined.
Exactly how much depends on who you ask – estimates range from about $21 billion to as high as $33 billion. Analytics firm CB Insights put the number at $25.2 billion, a stunning 713% increase over the $3.1 billion invested in crypto startups in 2020 and more than five-times higher than the previous record of $4.7 billion set in 2018.
The number of VC deals in the crypto space also increased. Venture capitalists made 1,247 deals in 2021, about twice as many as the previous year. That’s largely because the size of the deals also ramped up, especially “mega-rounds” of $100 million or more. There were 59 mega-rounds in crypto companies last year totaling $15.5 billion. Compare that to just four mega-rounds in 2020 for $662 million.
It’s hard to overestimate how much of a big deal it is to see such large sums of venture capital moving into crypto.
These venture capitalists aren’t fools – they’re in the game to earn a profit. They only bet on companies where they see the potential to make an exit with multiples of the amount they invested. And they only invest after doing extensive research.
They look at what the companies are doing – what problems they’re trying to solve. They meet with the founders. And of course, they look at the sector in which the firm plans to operate – in this case, crypto and blockchain.
Billions of dollars wouldn’t be getting thrown at hundreds of crypto companies by multiple venture capitalists unless there was real substance to this sector.
All this tells us as investors that venture capitalists have anointed crypto and blockchain tech as the “Next Big Thing.” The same thing happened in the late 1970s and early 1980s with the personal computer revolution, and in the late 1990s with the Internet. Each of those became huge, disruptive industries that have generated trillions of dollars in wealth.
The venture capitalists are sending us a message: Crypto is next.
You’re already well ahead of the curve, because we’re still in the very early stages. And when it comes to new, disruptive technologies, the earlier you invest, the bigger your returns are likely to be.
Now, let me show you where venture capitalists are placing their bets in crypto…
“We’ve moved beyond just digital gold. We’ve got financial services, art, gaming as a subcategory of NFTs, Web 3.0, decentralized social media, play-to-earn – all of that made investors think, `We don’t have enough exposure,'” Spencer Bogart, a general partner at Blockchain Capital LLC, told Bloomberg in December.
The Big Crypto Deals Just Keep Coming
Here are some of last year’s biggest VC deals:
- Crypto exchange FTX had a $900 million Series B round in July, giving it a valuation of $18 billion.
- Crypto custodian New York Digital Investment Group (NYDIG) raised $1 billion in December, putting its valuation at $7 billion.
- Forte Labs, which provides blockchain tech to video game companies, raised $725 million in a Series B round in November.
- Crypto payments firm MoonPay raised $555 million in a Series A round in November to reach a $3.4 billion valuation.
Notice that most of the biggest VC crypto deals of 2021 happened close to the end of the year. That momentum has carried over into 2022.
So far, we’ve seen major VC deals like this:
- Crypto custodian Fireblocks had a $550 million Series E round in January, bringing the company’s valuation to $8 billion.
- Helium, a Web3 crypto project aimed at building a decentralized wireless network to power Internet of Things devices, raised $200 million in a Series D round in February to reach a valuation of $1.2 billion.
- MetaMask wallet maker ConsenSys raised $450 million in a Series D round earlier this month to reach a valuation of $7 billion.
Here’s the thing you need to understand about these deals…
Retail investors used to have no choice but to wait for the most promising startups to have IPOs so they could buy the stock. And there’s no doubt that most of the unicorns mentioned above will go public at some point.
What many don’t realize is that not all the VC money is going into startups – some of it is going directly into crypto projects that have tokens anyone can buy today.
8 Cryptos That Venture Capitalists Have Singled Out
I’ve put together a list of some of the cryptocurrencies that have attracted VC investment. We’re not necessarily recommending them – although we have recommended the majority on the list elsewhere, so be sure to check the links provided – but we are providing this list to give you some investing ideas you can research on your own.
- Algorand (ALGO): Arrington Capital Management launched a $100 million fund in November with the goal of funding projects building on the Algorand blockchain. Read our take on Algorand here.
- Polygon (MATIC): AU21 Capital invested $21 million in the Polygon Ecosystem Fund last June. Polygon is a Layer 2 scaling solution designed to work with the Ethereum (ETH) network.
- Helium (HNT): In a round led by VC giant Andreessen Horowitz last August, Helium raised $111 million to grow its “LongFi” wireless network aimed at serving the Internet of Things. In February, Tiger Global and FTX Ventures poured another $200 million into Helium in a Series D round. Find more on Helium here.
- MobileCoin (MOB): This project raised $66 million in a Series B round last August from a group of VC firms that included Alameda Research, Coinbase Ventures, and Marc Benioff‘s TIME Ventures. MobileCoin’s goal is to enable near-instant, privacy-protected payments on smartphones.
- Axie Infinity (AXS): Sky Mavis, the company behind the popular Axie Infinity metaverse game, raised $152 million in October in a Series B round led by Andreessen Horowitz. Find out more about AXS here and here.
- Balancer (BAL): Balancer raised $12 million in a round led by Three Arrows Capital and Pantera Capital in February of last year. Another $24.25 million followed in May, with that round led by Blockchain Capital. Balancer is an AMM (automated market maker) used to help provide DeFi liquidity.
- Solana (SOL): Multicoin Capital set up a $100 million fund last May to invest in various Web3 projects with a focus on those based on the Solana blockchain. Later that month, three funds pledged a total of $60 million to projects built on Solana in emerging markets such as Brazil, India, and Ukraine.
- Polkadot (DOT): VC firm Master Ventures launched a $30 million fund in September for the purpose of building projects for one of Polkadot’s parachain slots. According to analytics firm Messari, Polkadot is the most widely held crypto among venture and hedge funds that invest in cryptocurrencies. Read more about DOT here and here.
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Advisory Board Member, American Institute for Crypto Investors
Follow me on Twitter @DavidGZeiler.