Believe it or not, it all started with a GitHub project in 2008 when Satoshi Nakamoto presented the world with the idea of the blockchain. No one could have imagined this scope and reach of the blockchain in fin-tech industry. The penetration of the blockchain and its applications have been worth noting.

Investors have been sporting a great deal of attention and funds on the blockchain startups and related projects. Recent years have witnessed increasing yet unstable investment in blockchain startups.

The rise in Investment Demand from Venture Capital Firms

The year 2018 has been remarkable till now and has been quite profitable for blockchain startups. The first half of 2018 saw the rise in venture capital investment with funds worth US$1.8 billion through 343 deals. It was in May 2018 that Crunchbase News’s Jason Rowley reported that the amount of money raised in old-school venture capital rounds by blockchain and blockchain-adjacent startups in 2018 had already surpassed the amount raised in 2017.  This clearly indicated the rise in demands from Venture Capital firms and clearly set an all-time high investment in the VC ecosystem.

Trends in Venture Capital investment

Numerous all-time highs have been seen in VC investment market and it seems that the figures are to bounce further in the second half of 2018. But we aren’t unaware of the Instability of VC investment.

1. The surge in investment demands of VC firms has a lot to do with the increase in VC “mega rounds” of over US$100 million.  Many firms have raised more than US$100 million and the reason for this is intentions of conducting an IPO.  

a)     For instance, Bitmain’s US$400 million Series B round in June that valued the company at a spectacular US$12 billion. This whooping amount of sum raised by Bitmain is equal to the total investment raised by VC firms in 2014.

b)     Bitmain has also come up with an intention to apply for Initial Public Offering in September this year.

c)    In May, Circle, which is a mobile payment and cryptocurrency trading company, raised US$110 million which put the company at nearly US$3 billion market valuation.

2.    The other important move of VC firms has been the merging or even acquisition of competitors with about 30 acquisition in the first half of 2018. The merging & acquisition (M & A) activities have had many impacts on the market. Capital spillage from overcapitalized firms will lead to the engulfing of many latent projects and exit of early-stage investors in the near future. Acquisition of web 2.0 companies is seen as an alternative to attain scale by blockchain startups and protocols.

a)   ‘Circle’ has earlier acquired a popular cryptocurrency trading platform Poloniex in February for about US$400 million. This shows the upsurge in Investment of these startups and their increasing pace of market capitalization by the acquisition of competitors.

b)    According to Crunchbase, Coinbase, a U.S. based cryptocurrency trading company has been an active acquisition firm, the company has already acquired seven small companies in 2018 only- Memo.ai, Cipher Browser, Earn.com, Paradex, Venovate, Digital Wealth and Keystone Capital. CrunchBase has acquired a total of nine smaller players including Paradex, a well-known decentralized exchange.

c)    The other crucial M&A has been the acquisition of BitTorrent by Tron’s for US$126 million in July.

d)    The market also saw Binance’s acquisition of mobile cryptocurrency wallet Trust Wallet in the first half of 2018.

3.    The other trend has been the rise of decentralized cryptocurrency exchanges. The decentralized exchanges do not hold customers’ funds, positions or information, but only serves as a matching and routing layer for trade orders.

a)     The top three decentralized exchanges for Ethereum ERC20 tokens – Idex, Bancor and ForkDelta collectively hold 91% of the market. But smaller exchanges such as Kyber, Airswap, and Radar Relay, cannot be ignored as they recently raised a US$10 million Series A investment.

4.    The other significant thing to note is the growing number of corporates getting into Cryptocurrency market. At the beginning of 2018, Robinhood, a popular stock trading app integrated tokens into its offerings. Similarly, Japanese messaging app Line launched its exchange BitBox in July.

5.    The other trend has been the popularity of stablecoins, which allow investors to hold and transfer dollar, euro, and other sovereign currencies pegged tokens between wallets without the need for a banking intermediary. Tether leads the market with a market share of US$2.7 billion. It is followed by nine other smaller and live blockchain-based stable currency implementations.

All these trends show the future potential of blockchain startups. The Venture capital market with its tremendous growth and innovative approach seems to have a stable business in future.