Blockchain start-ups raise record funding despite crypto slump

An illustration showing the cryptocurrency Bitcoin with a price chart in the background.

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Funding for blockchain startups topped $ 4 billion for the first time in the second quarter, despite a sharp drop in cryptocurrency prices.

Companies in the emerging industry have raised a record $ 4.38 billion, according to data from analytics firm CB Insights, more than 50% more than the previous quarter and almost nine times more than the same period last year.

Blockchain is the underlying technology behind most cryptocurrencies. It is essentially a digital ledger for virtual currency transactions that is distributed over a global computer network.

The largest round of funding for a blockchain company in the second quarter was a $ 440 million investment in Circle, a payments and digital currency company. Circle recently announced plans to go public through a merger with a blank check company valued at $ 4.5 billion.

Ledger, which develops hardware wallets that people can use to store their digital currencies, attracted the second largest round in the quarter, raising $ 380 million. In a December interview, Ledger CEO Pascal Gauthier told CNBC that the crypto market is maturing and major institutional players are involved.

“In 2018 when we raised our final round, financial institutions weren’t involved,” he said, adding that now “every major financial institution in the world either has a plan or is working on a plan” to invest in crypto invest.

The record funding shows how investors are finding alternative ways to get involved in the crypto industry by acquiring stakes in private startups that develop digital currency technologies and the distributed networks that underpin them.

Venture investors seem unimpressed by falling cryptocurrency prices. Bitcoin has more than halved in value since it hit an all-time high of nearly $ 65,000 in April when the US crypto exchange Coinbase went public.

Ether, the world’s second largest digital coin, has also fallen over 50% since hitting a record high of more than $ 4,000 in May.

“At the current rate, blockchain funding will break the year-end last year record – more than three times the 2018 total,” Chris Bendtsen, senior analyst at CB Insights, told CNBC.

“Blockchain’s record funding year is being driven by increasing consumer and institutional demand for cryptocurrencies,” he added. “Despite short-term price volatility, VC firms are still optimistic about the future of crypto as a mainstream asset class and the potential of blockchain to make financial markets more efficient, accessible and secure.”

Last month Andreessen Horowitz launched a $ 2.2 billion cryptocurrency fund. “We believe the next wave of computer innovation will be driven by crypto,” the Silicon Valley venture capital company wrote in a blog post.

Fintech financing frenzy

The overall financing of fintech companies also reached a new record. According to CB Insights, fintech startups raised a staggering $ 30.8 billion in the second quarter, 30% more than the previous quarter and nearly three times the amount fintechs made in the second quarter of 2020.

Europe’s fintech sector grew significantly, with 50% of the top venture deals in the quarter going to European companies. The trend was boosted by the growing interest of foreign investors in the continent’s rapidly growing technology industry.

The German stock trading app Trade Republic has collected the largest round in Europe and bagged $ 900 million from Sequoia Capital and Peter Thiels Founders Fund. Mollie, a Dutch rival to payment companies Square, Stripe, and Adyen, made $ 800 million.

The valuations of private fintechs have also risen significantly, with the Swedish company Klarna, which has to buy now and pay later, was able to secure a market value of almost 46 billion US dollars in June.

This has led to fears of a possible bubble in fintech. Iana Dimitrova, CEO of British fintech start-up OpenPayd, told CNBC that the upward trend in private financing rounds was “detrimental to the long-term sustainability of our industry”. According to CB Insights, the average fintech deal size increased 28% in the second quarter.

Is Fintech in a Bubble?

Another fintech boss, Stefano Vaccino from Yapily in London, disagrees. “I wouldn’t see it as a bubble,” he said. “We have seen financial services accelerate in the past 12 to 18 months.” Andreas Weiskam, partner at Yapily investor Sapphire Ventures, said it was “a reflection of the great opportunity” in digital finance.

Yapily, which raised $ 51 million in new funding this week, is one of many companies developing technology to fuel a new movement in finance called open banking, which aims to make data and payment initiation from banks for fintechs and to open other third parties.

Open banking has gained a lot of momentum recently, with Visa recently agreeing to take over Tink, a Swedish open banking startup, for $ 2.1 billion after failing to plaid due to regulatory pressure to acquire a similar company in the United States. Plaid raised $ 425 million in an April funding round at a valuation of $ 13.4 billion, while UK rival TrueLayer raised $ 70 million.

In the meantime, more and more fintechs are opening up the public markets for the first time. In the second quarter, 19 companies will go public or announce IPO plans.

UK money transfer Wise went public in London earlier this month with a valuation of $ 11 billion, while a number of companies including, Dave and Acorns announced plans to go public through mergers with special acquisition companies or SPACs To go stock market.

In the crypto world, the Coinbase virtual wallet went public in April with a blockbuster debut on the Nasdaq.

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