Tuesday, January 18

Investors are piling up in crypto startups, but not in China

For the first time in four years, VCs are backing more crypto and blockchain startups in the US than in Asia, a sign that China’s crackdown on altcoins has chilled the country’s upstart industry.

Although the country was once a crypto capital, China’s new restrictions on tech companies have reduced the number of cryptocurrency and blockchain startups obtaining funding, according to data compiled by research firm CB Insights to the date. Beijing banned banking and crypto mining operations this spring and then banned all transactions in September, forcing many founders to shut down or relocate.

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“Basically, we haven’t seen deals in China,” said CB Insights analyst Chris Bendtsen. “In Asia, the companies are really based in Hong Kong, India and Singapore.”

But as China’s cryptocurrency and blockchain companies fade, in the rest of the world, investment dollars have risen dramatically. The fourth quarter of 2021 is already the biggest for investing in cryptocurrency startups, “and it’s not even December,” Bendtsen said. Globally, the value of venture investments in the industry rose from $ 3.1 billion in 2020 to $ 21.3 billion through November 30, an increase of more than six times.

The number of deals in China has more than halved from 2020, to 41 so far this year. Meanwhile, the total value of funding for crypto and blockchain startups in the country also dropped by about a third to $ 214 million. In the US, it increased by more than seven to $ 10.9 billion in 417 deals.

The global rise is a sign that the sector is finally entering the mainstream. Investors in venture capital, private equity and corporate venture capital are “all believers now, and we will only see this trend continue next year,” Bendtsen said.

In fact, generalist venture companies like Bain Ventures are in the process of raising separate crypto funds. Others, like Lightspeed Venture Partners, plan to develop expertise in the field. “In the coming years, all Lightspeed partners will master encryption,” said Amy Wu of Lightspeed. “It is going to be the Internet of our generation.”

David Pakman, a longtime Venrock partner who joined crypto firm CoinFund in October as a managing partner, said he has seen a surge in interest since Coinbase Global Inc. went public in April.

“That woke up a lot of traditional investors,” he said, adding that family offices and donations have been among those invested this year. For example, donations from Harvard and Yale universities supported the new Paradigm venture capital fund, according to the Financial Times. In November, Paradigm closed a $ 2.5 billion fund, the largest yet for a cryptocurrency company.

© 2021 Bloomberg LP


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