Venture Capital Investment in Blockchain Surpasses $16 Billion Since 2012

Venture capital (VC) investment in blockchain technology has seen significant growth over the past decade, with over $16 billion invested in blockchain equity since 2012. This period has witnessed more than 3,000 blockchain venture capital deals, supported by 928 different investors, including angel investors, venture capitalists, incubators, and corporate entities. The landscape of blockchain investment has been dynamic, reflecting both the potential and volatility inherent in this nascent industry.

Blockchain Venture Capital Performance

Blockchain VC funds have demonstrated remarkable performance, often outpacing traditional VC funds. While traditional funds have typically seen returns in the low double digits, blockchain-focused VC funds have reported returns up to ten times higher. This impressive performance is attributed to the low correlation between blockchain investments and traditional asset classes, providing a diversification advantage for investors.

One prominent example is Blockchain Capital’s BCAP token, which has shown a correlation range with stock indexes between 0.00 and 0.14, underscoring the unique value proposition of blockchain investments. This low correlation has made blockchain venture capital an attractive option for investors seeking to diversify their portfolios.

Impact of COVID-19 on Blockchain Investments

The COVID-19 pandemic posed significant challenges to the global economy, and the blockchain sector was no exception. In 2020, blockchain VC investments decreased by 13%, dropping from $3.17 billion in 2019 to $2.77 billion. This decline contrasts with the broader trend in traditional venture capital, which saw an 18% increase during the same period.

Despite these challenges, certain segments within the blockchain space, particularly decentralized finance (DeFi), experienced substantial growth. In 2020, more than 200 venture and hedge funds invested in over 100 DeFi projects, with over $20 billion in capital currently locked into DeFi protocols. This surge in DeFi investment highlights the growing interest in decentralized financial systems as a cornerstone of blockchain technology.

Key Players and Popular Projects

The “Cointelegraph Blockchain Venture Capital Report” features interviews with influential VCs such as Etiënne vantKruys of TRGC, Jin Kang of #Hashed, Alon Goren from the Draper Goren Holm Fund, Stephan Wong from PNYX Ventures, Camron Miraftab of Rarestone Capital, Michael Anderson of Framework Ventures, and Ryan Taylor of the Dash Investment Foundation. These experts provide insights into the evolving landscape of blockchain investments.

Popular projects that attracted significant VC interest in 2020 included Avalanche (AVAX), Curve (CRV), DerivaDEX (DDX), Nervos Network (CKB), and Zilliqa (ZIL). These projects represent a diverse array of blockchain applications, from decentralized finance to scalable blockchain solutions, reflecting the broad scope of innovation within the industry.

Valuation and Comparative Analysis

Valuing blockchain private equity involves various financial metrics, including price to sales (P/S), price to book (P/B), and price to earnings per share (P/E). Some blockchain companies have achieved valuations with P/E ratios significantly higher than traditional tech giants like Apple. For instance, a notable blockchain company raised capital with a P/E ratio of 110, compared to Apple’s P/E ratio of 41.93 in December 2020.

Such high valuations indicate the market’s expectations for exponential growth in blockchain enterprises, albeit within a highly volatile environment. This volatility poses both opportunities and risks for venture capitalists and investors alike.

Future Trends and Sector Hotspots

The blockchain VC landscape is expected to continue evolving, with certain sectors poised for significant growth in 2021 and beyond. These sectors include further advancements in DeFi, blockchain interoperability solutions, and the integration of blockchain with emerging technologies such as artificial intelligence and the Internet of Things (IoT).

Moreover, the report delves into the tax implications of investing in blockchain private equity across different jurisdictions, the process of discounted cash flow analyses for exchanges like Coinbase and Kraken, and the benefits and risks associated with tokenizing fund shares.

Conclusion

The substantial investment in blockchain technology over the past decade underscores its potential to transform various industries. Despite economic pressures such as those posed by the COVID-19 pandemic, the blockchain sector has demonstrated resilience and adaptability. With continued innovation and growing institutional interest, the future of blockchain venture capital looks promising.

This analysis provides a comprehensive overview of the trends, challenges, and opportunities within the blockchain VC ecosystem, highlighting the key factors driving investment decisions and the sectors to watch in the coming years.