VC investments in the blockchain sector jumped 604%, while PE investments decline

Laxman Pai, Opalesque Asia:

VC investments totaling $14.8 billion were made in the blockchain sector in 2021, as companies continue to focus on IT solutions built on the technology said Global data Meanwhile, private equity investments in blockchain and cryptocurrency are in decline during second quarter of 2022, according to S&P Global Market Intelligence data.

Venture capital (VC) investments in the blockchain sector increased from $2.1 billion in 2020 to an impressive $14.8 billion in 2021, said a study.

According to the GlobalData report, both companies and investors are eager to develop IT solutions built on blockchain technology despite the lack of regulatory framework.

North America led in VC investments in 2021, with $6.8 billion; followed by Latin America, with $3.4 billion; Europe, with $3 billion; Asia-Pacific, with $1.6 billion; and the Middle East, with $0.44 billion, said a report.

GlobalData’s latest report, ‘Innovation in Blockchain Payments, reveals that the blockchain software and services market was valued at $4 billion in 2020 and is forecast to reach a whopping $199 billion by 2030. Growth will be driven by the integration of blockchain within core technologies such as remittance infrastructures, real estate, and the overall financial industry.

Currently, most blockchain integration projects are at the experimental stage, as a lack of regulation and skilled workers has prevented some companies from adopting this technology in their infrastructures.

Chris Dinga, the Payment Analyst at GlobalData, said: “One sector that is investing heavily in blockchain technology in banking and payments. Blockchain is helping the payments industry manage remittances, central bank digital currencies, and asset tokenization, however, it is still a new technology that needs to be fully tested before it can be adopted fully within the payments infrastructure.”

“Blockchain technology is still at an infancy level when it comes to being adopted within the financial sector. While cryptocurrency is the most popular application, it only represents one potential application of the technology. However, governments and companies are each exploring different ways to adapt the technology to their needs,” Chris added.

Over 90 central banks have shown an interest in developing their own central bank digital currencies (CBDC) and most of these will rely on blockchain technology. Currently, only a limited number of countries have managed to launch their own digital currencies but there is a lot of focus on China launching its own digital currency the e-yuan. The e-yuan is already available as a pilot test to Chinese residents in selected regions.

Private equity investments in blockchain, and cryptocurrency drops 48.1% in 2Q

Aggregate global deal value across blockchain and cryptocurrency tumbled 48.1% quarter on quarter in the three months to June 30, to a combined $2.7 billion, said a study.

According to S&P Global Market Intelligence data rapidly falling cryptocurrency prices, impending industry-specific regulation and macroeconomic headwinds are taking a toll on global private equity and venture capital investments in the two assets.

A strong $16.65 billion was invested in these assets in 2021, of which $960 million was committed to cryptocurrency, it said.

The ambiguity of digital-currency regulations by central banks, the cost of electricity used to run cryptocurrency mining farms and the ever-growing carbon footprint are among the factors hampering investment in cryptocurrency.

Meanwhile, the enterprise interest in [blockchain-powered applications], however, remains strong, said Alex Johnston, research analyst at 451 Research. “Companies are looking at applying [blockchain] technology to areas such as supply chain tracking, digital identity, and B2B payments. As this market gains traction, it may take the edge off the challenges of reduced confidence in the consumer space,” Johnston said.

Wider adoption will depend largely on regulators, he said. “Blockchain vendors and prospective investors are looking for transparency, but where we are seeing legislation, such as the EU’s European Securities and Markets Authority law, the focus is on blockchain as an enabler of speculative assets, rather than regulation concerning broader applicability.”

New York-based blockchain technology company ConsenSys Software Inc. completed the largest funding round in 2022 to date, raising $450 million. Returning investor ParaFi Capital LLC lead the round, while Temasek Holdings, True Capital Management LLC, and Anthos Capital LP were among the other participants.

Australian company Animoca Brands Corp. Ltd., which provides gamification, blockchain, and artificial intelligence technologies for mobile products, raised $409.9 million. Investors included 10T Holdings LLC, Alpha Wave Global LP, and Sequoia China Investment Management LLP.

Cryptocurrency exchanges FTX Trading Ltd. and West Realm Shires Services Inc. raised $400 million each in separate funding rounds supported by private equity firms.

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