Funding For Crypto Startups Falls Despite Increasing In Prices

As cryptocurrency prices skyrocketed towards the end of 2017, venture capital funds rushed to pour money into cryptocurrency startups. But the sputtering, and subsequent crash, of cryptocurrency markets in 2018 has made them wary.

According to online publication The Information, cryptocurrency startups raised $603 million until May 31 this year. By this time last year, VC firms had already poured $1.3 billion into the sector. The steep decline in funding has occurred even as cryptocurrency markets have revived after a prolonged slump. As of this writing, Bitcoin is changing hands at $8,268.41, up approximately 117% from the year’s start.

Coinlist founder Andy Bromberg told the publication that there may be a discrepancy in the numbers due to the lag between prices and the speed at which funds make new investments. He also suggested that several funding rounds have not been made public yet.

A Pullback Across the Board?

But the story of a pullback in funding goes beyond the venture capital industry. Investors in initial exchange offerings (IEOs), which have emerged as an alternative mode of financing crypto ventures, have also been cautious with their money.

John Todaro, director of digital currency research at Tradeblock, said approximately $518 million has been raised from 63 IEOs this year. That’s barely a fraction of the $6.3 billion that crypto startups had raised by April last year through initial coin offerings (ICOs). Research firm Messari Crypto writes that IEOs have been raising funds at “much more” reasonable valuations as compared to ICOs.

The secondary market for tokens from startups that claim to be developing next-generation protocols is also not that hot right now. According to a report from The Block last month, OTC sales for such tokens are selling at a “deep discount.”

A Realistic Assessment

These developments may be pointers to a more realistic and measured assessment of the capabilities for cryptocurrencies and blockchain. The frothy aftermath of skyrocketing valuations led investors to believe that profits in cryptocurrencies were immediate and astronomical. But regulatory bottlenecks and crackdowns have all but killed the market for ICOs.

Prominent firms have tested and abandoned blockchain. Accountability, in the form of questions about product updates, is being demanded from startups that raised money in the bubble. The Information report mentions that startups which raised funds last year have yet to provide updates or release their product.