Recently, CI covered the rise in venture capital money going into digital assets. There has been renewed interest in risk capital going into crypto firms.
In Q1 2024, crypto startups experienced an increase of 40.3% increase in venture funding and a 44.7% jump in deal volume compared with the previous quarter. This is according to Pitchbook which pegged the dollar amount at $2.4 billion across 518 deals. it was not that long ago that the digital asset sector was all gloom, doom and fraudulent activity. Today, it seems the industry has turned the corner to better days.
CI received some feedback from Alex Saleh, Head of Partnerships at Coincover, who believes the increase in VC activity is a sign of maturity and more regulatory clarity.
Saleh says that now there are Bitcoin ETFs trading in the US and Hong Kong, and major jurisdictions like the UK and EU are finalising regulatory frameworks. He says this means that crypto is becoming more closely intertwined with traditional finance.
“I think this has been key to helping the industry distance itself from its ‘Wild West’ stereotype, in turn giving VCs more confidence that crypto will indeed have a long-term place in our financial system. Addressing key risks – such as security concerns and fraudulent activity – will be central to building this confidence over the next couple of years,” said Saleh. “This doesn’t mean that we should expect a flurry of cash into the sector. While it’s positive to see funding increase, this will be a gradual upwards trend rather than one big bang. In an uncertain macro environment, VCs will remain cautious, choosing to put their money into companies that address a genuine market need and a tackle a specific industry problem.”
One thing has remained consistent with the crypto sector is volatility. Whether it is a traded digital asset or a company that has the next big thing, the ups and downs can be dramatic. For traders, this can be a good thing but for early stage ventures, not so much. But the experience of the past few years may mean more firms are focusing on scalable activities which are regulatory compliant – just like other financial services firms.
