Blockchain Startups Raise Record Funds Despite Crypto Crash

An illustration showing the cryptocurrency bitcoin with a price chart in the background.

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Funding for blockchain startups topped $ 4 billion for the first time in the second quarter, despite a sharp drop in crypto prices.

Infant industry companies raised a record $ 4.38 billion, according to data from analytics firm CB Insights, more than 50% over the prior quarter and nearly nine times more than in the same period a year earlier.

Blockchain is the underlying technology behind most cryptocurrencies. It is essentially a digital ledger of virtual currency transactions that is distributed through a global network of computers.

The largest funding round for a blockchain startup in the second quarter was a $ 440 million investment in Circle, a digital currency and payments company. Circle recently announced plans to go public through a $ 4.5 billion merger with a blank checking company.

Ledger, which develops hardware wallets for people to store their digital currencies, attracted the second-largest round of the quarter, raising $ 380 million. In an interview in December, Ledger CEO Pascal Gauthier told CNBC that the crypto market was maturing, with major institutional players participating.

“In 2018, when we raised our last round, financial institutions were not in the game,” he said, adding that now, “all the major financial institutions in the world have a plan or are working on a plan” to invest in cryptocurrencies. .

The record funding highlights how investors are finding alternative ways to gain exposure to the crypto industry, acquiring stakes in private start-ups that develop technology for digital currencies and the distributed networks that support them.

Venture investors seem unfazed by falling cryptocurrency prices. Bitcoin has more than halved in value since hitting an all-time high of nearly $ 65,000 in April, when the American crypto exchange Coinbase went public.

Ether, the world’s second-largest digital currency, is also down more than 50% since hitting a record high of over $ 4,000 in May.

“At the current rate, blockchain funding will break the previous year-end record, more than triple the total raised in 2018,” Chris Bendtsen, senior analyst at CB Insights, told CNBC.

“Blockchain’s record year of funding is being driven by growing consumer and institutional demand for cryptocurrencies,” he added. Despite short-term price volatility, venture capital firms remain optimistic about the future of cryptocurrencies as a mainstream asset class and the potential for blockchain to make financial markets more efficient, accessible, and insurance ”.

Last month, Andreessen Horowitz launched a $ 2.2 billion fund focused on cryptocurrencies. “We believe the next wave of computing innovation will be driven by cryptocurrencies,” the Silicon Valley venture capital firm wrote in a blog post.

Fintech funding frenzy

Funding for fintech companies as a whole also hit a new record. According to CB Insights, fintech startups raised $ 30.8 billion in the second quarter, 30% more than the previous quarter and almost triple the amount raised by fintechs in the second quarter of 2020.

Europe’s fintech sector gained significant traction, with 50% of the top risk trades in the quarter going to European companies. The trend was fueled by growing interest from foreign investors in the continent’s fast-growing tech industry.

German stock trading app Trade Republic raised the biggest round in Europe, with $ 900 million from companies like Sequoia Capital and Peter Thiel’s Founders Fund. Mollie, a Dutch rival to payment firms Square, Stripe and Adyen, raised $ 800 million.

Valuations of private fintech companies have also risen substantially, with Swedish buy-now-pay-later firm Klarna securing a market value of nearly $ 46 billion in June.

This has raised fears of a possible bubble in fintech. Iana Dimitrova, CEO of OpenPayd, the UK fintech start-up, told CNBC that the uptrend in private funding rounds was “detrimental to the long-term sustainability of our industry.” The average size of fintech operations grew 28% in the second quarter, according to CB Insights.

Fintech is in a bubble?

Another fintech boss, London-based Yapily’s Stefano Vaccino, disagrees. “I wouldn’t see it as a bubble,” he said. “We have seen in the last 12 to 18 months an acceleration in financial services.” Andreas Weiskam, investor partner at Yapily Sapphire Ventures, said it is “a reflection of the great opportunity” in digital finance.

Yapily, which raised $ 51 million in new funding this week, is one of many companies developing technology to promote a new movement in finance called open banking, which aims to open up bank data and initiate payments to fintechs and other third parties.

Open banking has been gaining a lot of momentum lately, and Visa recently agreed to acquire Tink, a Swedish open banking company, for $ 2.1 billion after failing to acquire Plaid, a similar company in the US, due to pressure. regulatory. Plaid raised $ 425 million at a valuation of $ 13.4 billion in an April funding round, while British rival TrueLayer raised $ 70 million.

Meanwhile, a growing number of fintechs have been turning to public markets for the first time, with 19 companies going public or announcing IPO plans in the second quarter.

The British money transfer Wise went public in London with a valuation of $ 11 billion earlier this month, while several companies, including, Dave and Acorns, announced plans to go public through mergers with companies of special purpose acquisition or SPAC.

In the world of cryptocurrencies, virtual currency exchange Coinbase went public in a successful Nasdaq debut in April.

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