With Bitcoin Hitting New Highs, Will VCs Take Notice?

It’s been a tough go for venture investors in the field of crypto in recent years.

Funding took a tumble after highly-publicized events such as Sam Bankman-Fried’s FTX debacle and the collapse of several other lenders. The overall general downturn in the venture market also did not help the still-maturing market.

In fact, venture funding to crypto-related startups fell to only $3.6 billion in 821 deals last year — a 78% drop from the $16.2 billion in 1,544 deals realized in 2022 — per Crunchbase data.

However, the much-maligned sector is now garnering headlines for a much different reason. Bitcoin, the largest cryptocurrency by market cap, is reaching new all-time highs as investors once again seem to be warming to the digital currency.

This week, Bitcoin rose above the $72,000 mark — a dramatic rise considering it was less than $16,000 in late 2022. In the last 30 days, the cryptocurrency is up around 44%, or nearly $22,000. Bitcoin’s rise actually started in the second half of last year, with the digital asset up about 179% in the last six months.

While the increase in price is too recent to really affect venture investment yet, funding to crypto-related startups has seen a bit of an uptick. So far in Q1, venture dollars already surpassed $625 million in 111 deals for crypto startups with nearly three weeks left in the quarter, Crunchbase data shows. Last quarter, such finding was only $446.3 million in 108 deals.

Some of the biggest rounds in the crypto sector included:

Hong Kong-based super app Freechat raised an $80 million Series A.
Paris-based crypto-financial service company Flowdesk closed a $50 million Series B.
Zurich-based Sygnum, a regulated digital asset specialist, raised a venture round worth approximately $40.6 million.

What’s behind the price surge

It’s unlikely the Bitcoin price surge has had much effect on venture funding in the sector so soon, but some of the forces pushing the price surge could indicate the sector is on the rise.

Perhaps the biggest boost to Bitcoin was from an unlikely source: the SEC.

In January, the commission and its chairman, Gary Gensler — who has never been a fan of crypto — gave a lukewarm allowance to U.S. exchange-traded funds that hold Bitcoin from nearly a dozen asset managers, including behemoths such as BlackRock and Fidelity.

The acceptance has proven a game-changer for what had been a down sector. With the ETFs, investors can now trade digital currencies without actually holding it, and without having to trade it on crypto exchanges that usually have significant transaction fees.

Investors have flocked to the ETFs with their ability to make crypto much more accessible. It is estimated the top nine leading bitcoin ETFs received a combined $10 billion through their seven weeks.

In a similar move this week, the U.K.’s Financial Conduct Authority also greenlighted exchanges in that country to trade crypto asset-backed exchange traded notes — likely sparking more interest in crypto from across the pond.

Bitcoin halving effect

While those moves have likely excited investors who have been on the fence about crypto, Bitcoin also has been helped by an event expected next month.

Bitcoin “halving” occurs roughly every four years, or for every 210,000 blocks validated. Miners get rewarded with Bitcoin for those validations, but the reward is cut in half when the “halving” occurs. That obviously means less Bitcoin will be entering circulation — therefore likely increasing demand by cutting the amount put into the system.

The event, which has occurred three times so far, brings headlines and excitement to the sector while also regulating the amount of Bitcoin — all things probably forcing the price of the asset upward.

Venture funding ramifications

With what seems like sustainable tailwinds pushing Bitcoin prices up, what remains to be seen is what effect that may have on venture investing in the space.

“I don’t think you’ll see a big uptick in investment this year, but 2025 could be bigger,” said Yash Patel, a general partner at Telstra Ventures who invests in Web3 and fintech startups.

Patel said with Bitcoin price increasing due to ETFs and the halving event, there is more money being drawn into the sector. He added many in the crypto, blockchain and Web3 space have started and developed new technologies and projects even as investors pulled back.

“Even during this past downturn, we never really saw a blockchain development dip,” Patel said. “Even as some projects were getting killed, developers continued to work in these spaces. Many learned to monetize in order to survive.”

That could lead to some investors coming back.

“I would expect VCs to get back into investing in the space,” he said. “Crypto and blockchain are like cockroaches — they are never going away.”