Blockchain Start-ups Raise $4.4 Billion in Q2 Despite Drop in Crypto Prices

Blockchain is a technology that lies behind the majority of cryptocurrencies. Essentially, it is a digital ledger of transactions in virtual currency and is readily available across a worldwide network of computers.

Despite a sharp slump in the price of all cryptocurrencies, funding for blockchain start-ups exceeded $4.4 billion USD for the first time in Q2.

Companies involved in the budding industry were able to raise $4.38 billion USD, a record according to data analytics firm CB Insights. The amount raised was up more than 50 percent from the previous quarter and an almost nine-fold increase based on the same period a year ago.

The most significant financing round during the second quarter was an investment exceeding $440 million in payments and digital currency firm Circle. Recently, Circle announced its intention of going public through a $4.5 merger with a special-purpose acquisition company, better known as SPAC.

A SPAC is often referred to as a “blank check” company as it holds nothing other than cash. These companies exist to purchase private organizations. This move avoids the potential pitfall of a conventional IPO.

Hardware wallet company Ledger attracted the second-largest round in the quarter, raising $380 million.

Alternative Ways to Gain Access to the Cryptocurrency Industry

As little as three years ago, financial institutions were yet to be involved in crypto. Today, every major player, worldwide, has a plan or is actively developing one to allow it access to crypto investments.

The record funding, in these times of uncertainty, shows how investors are seeking alternative methods to gain exposure to the crypto industry. They do so by buying a stake in private start-ups that are well along with the development of technology for digital currencies as well as the distributed networks underpinning them.

Venture capitalists do not appear to be fazed by the ever-declining prices of cryptocurrencies. Since hitting its all-time high of close to $65,000 in April, Bitcoin, a leading crypto, has more than halved in value.

The number two digital coin, Ether, has also fallen by more than half since it hit its record high of over $4,000 in May.

Chris Bendtsen, senior analyst at CB Insights noted that at the current rate, funding for blockchain will shatter all previous records, increasing more than three times the total raised three years ago.

Bendtsen added, “The record funding for blockchain this year is driven by demand from both consumers and institutions for crypto.”

Fintech Funding Hits New Record

According to data provided by CB Insights, funding for fintech start-ups raised close to $31 billion in the second quarter alone. This amount is up 30 percent over Q1, and almost three times the amount raised in Q2, 2020.

The fintech sector in Europe also gained significant traction. Half of the top venture deals in the quarter went to firms in Europe. This trend has been boosted significantly by an ever-growing interest from foreign investors in the fast-growing tech sector in Europe.

Trade Republic, a German stock trading app, raised $900 million from the likes of Sequoia Capital and Founders Fund. A company in the Netherlands that rivals payments firms Square and Stripe netted $800 million.

These moves have raised concerns of a potential bubble in fintech, according to Iana Dimitrova, CEO of startup OpenPayd. She suggests the uptrend in private financing may have a detrimental impact on the sustainability of the industry. According to CB Insights, the average fintech deal grew by over 25 percent in Q2.

Is Fintech in a Bubble?

Stefano Vaccino, boss of London-based Yapily disagrees with Ms. Dimitrovas suggestion. He suggests that over the last 12 to 18 months, there has been an acceleration of financial services and reflects a “great opportunity” in digital finance.

Yapily is one of the companies involved in the development of open banking, a fresh movement in finance. The company, which raised $51 million in funding this week alone, aims to open bank’s data and payment initiation to third parties such as fintechs.

What is being referred to as “open banking” is gaining traction. VISA has recently acquired an open-banking start-up in Sweden for over $2 billion, after failing to acquire a similar company based in the United States.

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Author: Jason Donaldson