When venture capitalists start throwing tens of billions of dollars at a particular thing, investors tend to take notice. Because it means that "thing" is on the cusp of exploding into a major area of growth with a potential wellspring of profits just waiting to be tapped.
And now, venture capitalists have their sights set on cryptocurrency, with more money invested in crypto and blockchain tech companies in 2021 than in all previous years combined.
Exactly how much depends on who you ask - estimates range from about $21 billion to as high as $33 billion. Analytics firm CB Insights put the number at $25.2 billion, a stunning 713% increase over the $3.1 billion invested in crypto startups in 2020 and more than five-times higher than the previous record of $4.7 billion set in 2018.
The number of VC deals in the crypto space also increased. Venture capitalists made 1,247 deals in 2021, about twice as many as the previous year.
It's hard to overestimate how much of a big deal it is to see such large sums of venture capital moving into crypto. VCs only bet on companies where they see the potential to make an exit with multiples of the amount they invested. And they only invest after doing extensive research.
All this tells us as investors that venture capitalists have anointed crypto and blockchain tech as the "Next Big Thing." The same thing happened in the late 1970s and early 1980s with the personal computer revolution, and in the late 1990s with the Internet. And you saw what happened there.
The venture capitalists are sending us a message: Crypto is next. And the earlier you invest, the bigger your returns are likely to be.
Now, let me show you where venture capitalists are placing their bets in crypto...
The Big Crypto Deals Just Keep Coming
Here are some of last year's biggest VC deals:
- Crypto exchange FTX had a $900 million Series B round in July, giving it a valuation of $18 billion.
- Crypto custodian New York Digital Investment Group (NYDIG) raised $1 billion in December, putting its valuation at $7 billion.
- Forte Labs, which provides blockchain tech to video game companies, raised $725 million in a Series B round in November.
- Crypto payments firm MoonPay raised $555 million in a Series A round in November to reach a $3.4 billion valuation.
Notice that most of the biggest VC crypto deals of 2021 happened close to the end of the year. That momentum has carried over into 2022:
- Crypto custodian Fireblocks had a $550 million Series E round in January, bringing the company's valuation to $8 billion.
- Helium, a Web3 crypto project aimed at building a decentralized wireless network to power Internet of Things devices, raised $200 million in a Series D round in February to reach a valuation of $1.2 billion.
- MetaMask wallet maker ConsenSys raised $450 million in a Series D round earlier this month to reach a valuation of $7 billion.
Here's the thing you need to understand about these deals...
Retail investors used to have no choice but to wait for the most promising startups to have IPOs so they could buy the stock. And there's no doubt that most of the unicorns mentioned above will go public at some point.
But crypto is different. While a few crypto stocks are available to buy, most of the opportunity here is in buying the cryptocurrencies themselves.
What many don't realize is that not all the VC money is going into startups - some of it is going directly into crypto projects that have tokens anyone can buy today.
8 Cryptos That Venture Capitalists Have Singled Out
I've put together a list of some of the cryptocurrencies that have attracted VC investment. We're not necessarily recommending them - although we have recommended the majority on the list elsewhere - but we are providing this list to give you some investing ideas you can research on your own.
- Algorand (ALGO): Arrington Capital Management launched a $100 million fund in November with the goal of funding projects building on the Algorand blockchain.
- Polygon (MATIC): AU21 Capital invested $21 million in the Polygon Ecosystem Fund last June. Polygon is a Layer 2 scaling solution designed to work with the Ethereum (ETH) network.
- Helium (HNT): In a round led by VC giant Andreessen Horowitz last August, Helium raised $111 million to grow its "LongFi" wireless network aimed at serving the Internet of Things. In February, Tiger Global and FTX Ventures poured another $200 million into Helium in a Series D round.
- MobileCoin (MOB): This project raised $66 million in a Series B round last August from a group of VC firms that included Alameda Research, Coinbase Ventures, and Marc Benioff's TIME Ventures. MobileCoin's goal is to enable near-instant, privacy-protected payments on smartphones.
- Axie Infinity (AXS): Sky Mavis, the company behind the popular Axie Infinity metaverse game, raised $152 million in October in a Series B round led by Andreessen Horowitz.
- Balancer (BAL): Balancer raised $12 million in a round led by Three Arrows Capital and Pantera Capital in February of last year. Another $24.25 million followed in May, with that round led by Blockchain Capital. Balancer is an AMM (automated market maker) used to help provide DeFi liquidity.
- Solana (SOL): Multicoin Capital set up a $100 million fund last May to invest in various Web3 projects with a focus on those based on the Solana blockchain. Later that month, three funds pledged a total of $60 million to projects built on Solana in emerging markets such as Brazil, India, and Ukraine.
- Polkadot (DOT): VC firm Master Ventures launched a $30 million fund in September for the purpose of building projects for one of Polkadot's parachain slots. According to analytics firm Messari, Polkadot is the most widely held crypto among venture and hedge funds that invest in cryptocurrencies.
A lot of these coins are part of what we call the "other" crypto market - the tokens that aren't on everyone's radar, like Bitcoin and Ethereum, but still have incredible potential because of the tech they're connected to.
We've been calling these "microcurrencies," because you can often get them for pennies on the dollar compared to Bitcoin. But the returns are some of the highest we've ever seen, crushing both Bitcoin and the stock market.
I'm talking potential gains of 75 to one, 211 to one... even 5,567 to one in the same span as BTC. This new class of game-changing cryptos is set to skyrocket, and you can get all the details on them here...
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.