In the first quarter of 2021, a glut of upper-class institutions, including Tesla and MicroStrategy, spent large sums of money to acquire Bitcoin. It appears the hype has cooled off since. However, the interest in crypto and blockchain-based firms have received a boom instead.
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The second quarter of 2021 saw an extensive amount of capital being injected into blockchain and crypto-focused companies through venture capital funds. To put this into perspective, VCs have poured a staggering $17 billion into crypto-centered companies so far this year. That is more than all the capital poured into the crypto space in 2020, by a large margin.
Bearing the high-risk, speculative nature of the crypto industry in mind, it would be reasonable to see a small number of venture capitalists interested in the field. However, the crypto lead at PwC says an increasing number of large VCs and pension funds are actually interested in investing in the space.
Large VCs Compete Over Crypto Firms
In an interview with Bloomberg, Henri Arslanian, PwC's crypto lead, asserted that there is even a little bit of competition among VCs when it comes to investing in crypto initiatives. Arslanian said smaller players are not happy as they are constantly being elbowed out by larger VCs.
“Let‘s say they’re looking at a deal and they believe it‘s worth $10 million, and you’re seeing large VCs come in and put a bid in for a higher valuation. This is happening a lot with very early-stage companies, say, $5 million to $20 million — the prices are being inflated,” Arslanian said.
This year so far, we have witnessed a number of historic deals aimed at crypto firms. In May, the blockchain software firm Block.one poured $10 billion into a new crypto exchange dubbed “Bullish Global.” More recently, on June 24, the venture capital firm Andreessen Horowitz (a16z) raised $2.2 billion for its long-awaited Crypto Fund III.
Despite all the positive sentiment around the crypto market, Arslanian says there are not many crypto initiatives that can absorb extremely large investments. “If your minimum ticket size is around $50 million, there aren‘t that many companies that have that status yet. If you’re a large pension fund and you decided to make a crypto allocation, there are no more than two dozen companies around the world that are investable, looking for capital and could absorb $100 million,” he said.