The Emerging Narrative
A remarkable shift is underway in how institutional capital flows into the cryptocurrency and blockchain space. While the ICO boom of 2017 captured most of the headlines, a quieter but equally significant trend has been building in traditional venture capital. By May 20, 2018, blockchain and crypto startups had already attracted over $1.3 billion in VC funding globally, surpassing the total venture investment recorded for the entirety of 2017 in just the first five months of the year.
The data, compiled by Crunchbase, specifically excludes ICO fundraising and focuses solely on traditional venture rounds including angel, seed, convertible notes, and Series A through later-stage rounds. This distinction is crucial because it indicates that sophisticated institutional investors are making long-term bets on blockchain infrastructure, separate from the retail-driven token sale frenzy that characterized much of the previous year.
Catalyst Identification
The single largest catalyst behind this milestone is the emergence of crypto unicorns. Circle, the Boston-based payments company founded by Jeremy Allaire and Sean Neville, closed a $110 million Series E round led by Bitmain, the Chinese mining hardware manufacturer. The round valued Circle at a staggering $2.9 billion pre-money, up from $420 million in its May 2016 Series D. This vaulted Circle into an exclusive club that at the time included only Coinbase and Robinhood as crypto-native companies valued at $1 billion or more.
But Circle is just the tip of the iceberg. The breadth of VC activity across the blockchain sector is what makes this trend particularly noteworthy. Investors ranging from traditional Silicon Valley firms like Accel Partners and General Catalyst to crypto-native funds like Pantera Capital and Digital Currency Group have been deploying capital at an accelerating pace. The participating investors in the Circle round alone read like a who-is-who of both conventional and crypto venture capital: Bitmain, Tusk Ventures, Pantera Capital, IDG Capital Partners, General Catalyst, Accel Partners, Digital Currency Group, Blockchain Capital, and Breyer Capital.
Another significant catalyst is the growing recognition that blockchain infrastructure requires substantial investment beyond what token sales can provide. Companies building custody solutions, trading platforms, compliance tools, and enterprise blockchain applications are increasingly turning to venture capital for the patient, strategic backing needed to build regulated financial products.
Key Players to Watch
Bitmain emergence as a lead investor in the Circle round signals a strategic pivot for the mining giant. Under the leadership of Jihan Wu, Bitmain has been expanding beyond its core hardware business into investments across the broader crypto ecosystem. The partnership between Circle and Bitmain was announced at Consensus 2018 in New York, where the two companies discussed plans for a stablecoin and a broader global payments infrastructure.
Coinbase continues to set the pace as the most valuable crypto company, having attracted investment from some of the most prominent venture firms in the world. Its trajectory from a simple Bitcoin exchange to a full-service digital asset platform illustrates the kind of growth trajectory that VCs are looking for when they invest in blockchain companies.
Robinhood, the stock trading app that expanded into cryptocurrency trading, represents another model for how traditional finance and crypto are converging. Its valuation and growth have demonstrated that the addressable market for crypto trading extends well beyond the existing crypto community into mainstream retail investors.
Binance Coin, trading at just $14.12 on May 20 with a modest $1.6 billion market cap, also deserves attention. While not a VC-funded company per se, the exchange ecosystem that Binance represents is creating the trading infrastructure that makes institutional investment in the space possible.
Risk Assessment
The influx of venture capital into blockchain is not without risks. The most obvious concern is valuation. With Circle valued at $2.9 billion before generating the kind of revenue typically associated with such valuations, there is a risk that the market is getting ahead of itself. The crypto market has already experienced a dramatic correction from its January 2018 highs, with Bitcoin falling from nearly $20,000 to around $8,513. If the bear market deepens, these unicorns could face down rounds or struggled to justify their valuations.
Regulatory uncertainty remains a significant overhang. While VC funding suggests institutional confidence, regulators around the world are still grappling with how to classify and oversee crypto businesses. The SEC has been increasing its scrutiny of token sales and exchanges, and any adverse regulatory action could impact the viability of companies in the space.
There is also the risk that the $1.3 billion figure, while impressive, may include some double-counting or reporting delays inherent in Crunchbase methodology. The actual number of deployed capital may differ from reported figures, particularly for rounds that have not been publicly disclosed.
Strategic Conclusion
The surpassing of 2017 VC funding totals by May 2018 represents a maturation of the blockchain investment landscape. While ICOs dominated the narrative in 2017 with their eye-popping fundraising numbers, the steady flow of venture capital into the sector suggests a more sustainable growth trajectory. Companies like Circle, Coinbase, and Robinhood are building the regulated infrastructure that will be needed for the next wave of crypto adoption.
For market participants, this trend has several implications. First, the companies that survive the current market downturn will emerge with strong institutional backing and competitive moats that will be difficult for new entrants to replicate. Second, the involvement of traditional venture firms brings credibility and connections that could accelerate mainstream adoption. Third, the focus on infrastructure rather than speculative tokens suggests that the next phase of crypto growth will be driven by utility rather than hype.
Investors looking to gain exposure to this trend should consider the downstream effects of VC investment on the broader market. As these funded companies build products and acquire users, demand for the underlying blockchain networks and their native tokens is likely to increase. With Bitcoin at $8,513 and Ethereum at $715, the market is valuing these networks well below their recent highs, creating a potential opportunity for those who share the conviction of the venture capitalists now deploying billions into the space.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk, and readers should conduct their own research before making investment decisions. Prices mentioned reflect market data from May 20, 2018.
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