Venture Capital Investment in Crypto Market Hits All-Time High: Report

New Delhi: At a time when the cryptocurrency market is feeling the heat of an intense sell-off, global venture capitalists are pumping money into startups related to the sector, a report suggests.

According to a report by Galaxy Digital Research, a New York-based financial services firm, venture capitalists (VCs) have invested more than $10 billion in crypto startups during the first quarter of 2022.

This is the largest quarterly investment in the crypto industry in a quarter. Interestingly, the sharp rise in venture capital transactions in the crypto space is running at a time when crypto markets are trading roughly 50 percent below their peaks.

The outcome of the report is surprising as investment by venture capitalists has peaked amid growing regulatory concerns and skepticism in the crypto market. Despite the loss in the market, valuations are seeing a solid rise.

Hitesh Malviya, founder of IBC Capital, said that institutional money is mainly betting on bitcoin, which was considered a risk-free asset during the recent economic crisis.

“Institutions deposit their money in risk-free assets like gold and bitcoin during market conditions like the current one, where we are approaching a global recession,” he added.

Since the fourth quarter of 2020, VC money is flowing into the crypto theme. However, the number of venture deals has taken a hit, compared to last quarter, the report suggests. The deal count has remained above 500 for the past five quarters.

According to the report, valuation and transaction sizes in the cryptocurrency and blockchain space continue to outpace the broader venture capital landscape.

Web3, non-fungible tokens (NFTs), DAOs, the Metaverse, and gaming are key themes that emerged victorious for the largest capital investment and deal count, around 22 percent of capital allocations, the report suggested.

However, trading exchanges or investment platforms are not far behind as they got around 21 percent of the VC funding allocation. It was followed by infrastructure (14 percent), custody (9 percent), and mining (5 percent).

The report concluded that despite the shrinking in the crypto space, venture capitalists are arriving at a fast pace in the sector. Meanwhile, pre-seed offerings continue to decline despite the massive appeal of cryptocurrencies, he added.

Anticipating the funds’ future course of action, Malviya predicted that institutions will continue to buy Bitcoin and Ethereum on dips.

“But if we look at other crypto assets, I don’t think we’ll see any influx from these participants, as other altcoins are exclusively driven by retail investors, and retail investors are currently bearish on the market,” he added.

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