Venture capital’s return to crypto
Venture-backed investments in crypto startups and protocols have rebounded in a major way in 2024.
There’s never a dull moment on the blockchain. Here’s what you need to know this week:
Bitcoin rebounded back above $60K. What BTC futures markets, ETF inflows, and a major BTC milestone could mean for crypto markets moving forward.
Venture capital is pouring back into crypto technology. A closer look at three emerging categories that VCs are funding this year.
This week in numbers. The percentage of swing state voters who say crypto is a key issue, Standard Chartered’s BTC price prediction for 2025, and more stats to know.
MARKET BYTES
Crypto rallied back above $60K — what might happen next?
After closing out April down for the first time since August, bitcoin began to bounce back this week. As of Wednesday morning, BTC was hovering above $62,000 (compared to last week’s low below $57,000) and virtually all major cryptocurrencies were up for the week.
What helped drive the spike? For one, cooler-than-expected employment numbers may have increased traders’ expectations that the Federal Reserve will cut interest rates this year. Some traders may have also taken advantage of lower prices to “buy the dip.”
Here are three market updates to know.
1: What do futures markets suggest could happen next?
One way to gain perspective on where pro traders think prices are heading is to look at futures markets, which can provide insight into the direction of potential future price movements in the spot market.
As prices ticked back up this week, there was an increase in demand for bitcoin call options that would pay off if prices rise to $75,000, or even $100,000. According to Coindesk, “Data from [crypto options and futures exchange] Deribit show traders have locked in over $688 million in the $100,000 strike call options across different maturities.”
Keep in mind… Nobody can predict the future, and these leveraged bets will be liquidated if the prices move in the wrong direction. This mechanism can be a major driver of market volatility, because when enough of such trades are liquidated at the same time, they can drag the broader market down with them, leading to further liquidations.
2: The Bitcoin network has processed 1 billion transactions
On Sunday — exactly 800 hundred weeks and one day since Bitcoin was launched in 2009 — the BTC network processed its billionth transaction.
Over its entire life so far, the network has processed an average of 178,475 transactions per day, but in recent months that number has often spiked significantly as prices have surged, the halving came and went, and new technologies like Ordinals and Runes have arrived.
As Bitcoin Magazine reports: “April 23 saw a single-day transaction record above 926,000, and while volume has moderated from those highs, Bitcoin continues averaging 600,000+ transactions in May 2024.”
The Rune effect… Last week, Bitcoin Runes — a new protocol that allows users to easily launch tokens on top of the Bitcoin network — accounted for a majority of transaction volume. The popular protocol has been a boon to miners, who have seen spiking transaction fees make up for some of the post-halving declines in block-reward revenue.
3: BTC ETF inflows picked back up
From big funds like BlackRock’s IBIT to smaller funds like Bitwise’s BITB (did these firms all play the same game of Boggle?), the entire spot bitcoin ETF sector saw inflows rise this week, according to data from the Block.
And for the first time since the BTC ETFs began trading in January, the biggest fund finally saw cashflows turn positive.
Grayscale’s Bitcoin Trust ETF, which has more than $18 billion under management, saw net inflows of around $63 million on May 3, according to Bloomberg.
This is significant because the fund, which was converted into a spot BTC ETF, has management fees around 1.5%, compared to less than 0.3% for most competitors. (Grayscale is also launching a low-fee alternative.)
Diamond hands gang?… So far at least, the majority of BTC ETF holders appear to be in it for the long haul. “Over 95% of the ETF investors HODL-ed during what was a pretty nasty and persistent downturn,” said Bloomberg ETF analyst Eric Balchunas. “Over time two things tend to be true for ETFs: net growth and relatively strong hands.”
VENTURE TIME
The new crypto technologies that VCs are backing
As crypto markets have reawakened this year, investments in crypto-related startups and protocols have also returned in a big way.
Venture capital — which dipped during crypto winter as buzzy new sectors like AI emerged — is back. Early-stage (or “Series A”) investment is approaching levels last seen during the 2021 bull run; at least $1 billion in capital has been poured into startups for two consecutive months; and firms still have an ocean of capital left to deploy.
Fundraising has also picked up steam. Crypto venture giants Pantera Capital and Paradigm (co-created by Coinbase co-founder and current board member Fred Ehrsam) are raising new funds of $1 billion and $850 million, respectively, to back crypto initiatives.
Amid all this activity, what are the new crypto-powered technologies receiving funding? Here’s a breakdown of three sectors you should know about.
(Quick disclosure before we dive in: Coinbase Ventures portfolio companies and associated projects are denoted with an asterisk (*) upon first reference in this story.)
1: Decentralized physical infrastructure projects
Decentralized physical infrastructure (DePIN) is one of the hottest crypto narratives of the year, with startups in the field already raising tens of millions of dollars this year.
DePIN projects are peer-to-peer networks in which individuals contribute resources like computing power, data storage, or wireless connectivity in exchange for rewards defined by the protocol’s incentive mechanism.
DePIN startups that have raised funds this year include:
IO Research: This Solana-based startup raised $30 million earlier this year. The company is focused on providing decentralized computing for AI and machine-learning startups, by incentivizing individuals to lend unused GPU power to the network. To date, the startup has more than 25,000 GPUs in its network, which have processed over 40,000 hours of computation.
Natix Network: Natix, which is also a Solana-based DePIN project, raised $4.6 million last month to help fund its vision of collecting real-time geospatial and mapping data. (Users download an app that connects them to an “internet of cameras” that can feed real-time data from users’ smartphone cameras and dashcams into AI analysis in exchange for rewards.) According to Natix, this data is especially useful for firms like autonomous-driving startups. To date, Natix claims to have nearly 100,000 registered drivers, who have mapped more than 17 million miles since April 2023.
2: The tokenization of real-world assets
One of the biggest opportunities for crypto is tokenization, in which pretty much any asset class — from stocks to real-estate — can be represented as a token on a blockchain.
The prospect of faster, cheaper global transactions has analysts predicting that tokenization could grow into a $10 trillion industry by 2030. As BlackRock CEO Larry Fink recently put it, tokenization represents “the next generation for markets.”
A wide range of crypto startups are seeking to build the protocols that would power this new tokenized ecosystem. And venture firms seem eager to invest — more than two dozen tokenization startups have already raised around $80 million so far this year. Two examples are:
Securitize*: The startup, which raised $47 million last week in a round led by BlackRock, is already one of the leading tokenization firms, with more than $600 million in assets on chain. Securitize allows users to invest in onchain private equity or VC funds, including BlackRock’s recently launched tokenized treasury fund, which has garnered $375 million of investment within two months.
Homium: This Avalanche-based platform, which raised a $10 million Series A round, aims to help homeowners unlock equity by offering loans backed by their home’s future price appreciation. Where does the capital come from? Institutional investors can purchase tokenized shares in pools of these loans.
3: Bitcoin-scaling solutions
Compared to most newer cryptocurrencies, Bitcoin processes transactions slowly — taking, as noted above, 15 years to reach 1 billion transactions. (Ethereum, by contrast, has processed 2.4 billion transactions in less than ten years.)
But a number of startups are aiming to solve Bitcoin’s processing limitations via a host of innovations: “layer 2” (L2) protocols like the Lightning Network*, restaking protocols like Lorenzo Protocol, and cross-chain bridges like Core DAO. BTC-ecosystem startups have inked 81 funding deals so far this year, compared to 77 in all of 2023, according to the Block. Among these are:
Mezo*: This L2 project, which just raised $21 million, allows users to lock their BTC into a smart contract and receive an Ethereum-compatible token that’s backed by their bitcoin holdings. That token can then be used across the DeFi ecosystem, opening up a host of use cases.
ZKM: The Ethereum L2 ZKM raised $5 million this week in advance of a new BTC L2 effort that would help bridge the two blockchains. Said the firm’s CEO, “We aim to connect multiple blockchain ecosystems, enhancing scalability, security, and interoperability across the board.”
The bottom line…
In addition to the many new funds being raised, at least some of the billions of dollars that venture funds raised during the last bull cycle are still available.
Startups have taken advantage of this situation by pioneering a new “rolling” funding strategy, where, instead of organizing rounds of investment that take place over years, VCs are able to continually buy into a startup. Decentralized artificial intelligence firm OG Labs used this strategy to raise $35 million — around 20 times more capital than the firm had estimated it would receive.
NUMBERS TO KNOW
$150 billion
Total transaction volume the Ethereum L2 network Arbitrum has achieved via the decentralized exchange (DEX) Uniswap, making it the first L2 to achieve that much volume on the popular DEX.
$200,000
Standard Chartered’s prediction for BTC’s price by the end of 2025, according to a new report. The bank’s analysts also suggested that a second Trump presidency could drive up BTC prices due to “a more supportive regulatory environment,” among other factors.
40%
Weekly gain of RNDR, the native token of AI-meets-crypto company the Render Network, as of Tuesday. RNDR, which saw the biggest weekly gains of the top 100 cryptocurrencies, was just one of several AI-related tokens that surged following a rally for AI chipmaker NVIDIA’s stock.
20%
Approximate percent of swing-state voters who consider crypto a key issue in the upcoming U.S. elections, according to a new poll conducted by blockchain venture firm Digital Currency Group. DCG executive Julie Stitzel noted that the survey data “shows crypto is top of mind for voters in swing Senate states and that a pro-crypto position is a net positive for policymakers and candidates.”
10%
Percent of its monthly bitcoin profits that fintech firm Block (formerly Square) plans to use for acquiring more BTC throughout the rest of 2024. As of March 31, Block reported 8,038 BTC (about $482 million) on its balance sheet, ranking seventh on the list of largest corporate BTC holders.
TOKEN TRIVIA
What is a stablecoin?
A
A cryptocurrency that has its price pegged to a reserve currency, typically the U.S. dollar
B
A horse-themed cryptocurrency
C
A highly volatile cryptocurrency
D
The native token of the Cardano blockchain
Find the answer below.
Trivia Answer
A
A cryptocurrency that has its price pegged to a reserve currency, typically the U.S. dollar
