Despite the 2018 bear market, large corporations and venture capitalists are still continuing to pour investments into cryptocurrency startups. The established trend for many of these companies is to support startups building important protocols around cryptocurrency and blockchain technology.
However, these large corporations seldom have any exposure to virtual currencies themselves with the asset class still viewed as highly volatile. In 2018, cryptocurrency prices fell by an average of 80 percent across the entire market, wiping away most of the gains earned during the late 2017 bull run.
Big Companies Betting on Cryptocurrency Startups
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According to Reuters, research data from Pitchbook shows that VC firms are backing cryptocurrency startups with significant investments. The report shows that there have been 13 investment deals in 2019 with a total value of $850 million.
The Pitchbook report posits that the current 2019 trend could see the year’s investment figures reach the same heights as 2018. Massive investments from companies like Microsoft and the London Stock Exchange Group saw 2018’s figures reach a whopping $2.4 billion from 117 investment deals.
Mainstream investors like Polychain capital, Andreessen Horowitz, and even Wall Street banks like Goldman Sachs have doled out millions of dollars’ worth of investment into cryptocurrency startups. Many of these startups focus on developing technological solutions that utilize cryptocurrencies and blockchain technology.
Jamie Burke, the Outlier Ventures CEO say venture capitalists are alive to the potential of blockchain technology significantly impacting the modern digital age. According to Burke:
“There is a huge experimentation in effectively the basic plumbing for a native economic layer to the web.”
Tokenization is the Future
The belief that tokenization is going to be a major component of the emerging digital economy is one of the driving forces of this investment trend. Commenting on the matter, Anton Ruddenklau, the co-head of the global fintech division of KPMG declared:
“People are really enamored by tokenization – the ability to produce coins or other forms of value – so that’s where we see all of the action at the moment. They are investing as a technological hedge as much as anything.”
While putting this much equity stakes in crypto startups, institutional investors have generally shied away from holding direct investments in cryptocurrencies. Many stakeholders say a reversal in this trend is necessary for virtual currencies becoming more mainstream.
However, before many institutions will become comfortable holding crypto bags, regulations for the industry will have to become more robust. Since 2018, some jurisdictions like Japan and Thailand have begun to firm up laws that control the cryptocurrency market in their respective companies.
While VC funding for cryptocurrency startups continues to grow, the same cannot be said for initial coin offerings (ICOs). Since the middle of 2018, ICO fundraising has been on the decline.
Coinbase $520 Million Revenue in 2018
Going by the huge investment figures, there is the question of whether these investments have the potential to yield positive results. Coinbase, the San Francisco-based cryptocurrency exchange behemoth is one of the most heavily invested cryptocurrency startup.
Valued at about $8 billion, the UK division of the company recently reported $173 million in total revenue from 2018. This figure marks a 20 percent increase from the earnings reported in 2017.
According to Zeeshan Feroz, the head of the company’s U.K. division, Coinbase UK accounts for about 30 percent of the entire company revenue. Extrapolating further puts the total annual revenue for Coinbase in 2018 at $520 million.
These earnings become even more staggering considering the prolonged bear market of 2018. Throughout the year, cryptocurrency prices continued to hemorrhage, sliding by more than 80 percent across the board.
We also believe that strategic partnerships between larger companies and startups can help big corporations to overcome their lack of innovation. We wrote our last article “Corporate Innovation: Expert Round Table 4#” that you can find here: https://valuer.ai/blog/corporate-innovation-expert-round-table-4/