Venture Capital Investment in Crypto
Initial coin offerings (ICOs) have had a notable impact on the Bitcoin ecosystem, with market research pointing to a decrease in venture capital investments in Bitcoin over the past five years.
Adam Back, CEO of Blockstream and inventor of the Hashcash algorithm which Bitcoin is based on, discussed the difference between the market capitalization of Bitcoin and the lack of venture capital investment in the crypto space with Cointelegraph’s Joseph Hall in Lugano, Switzerland.
Trammell Venture Partners published research which showed a sharp increase in venture capital spending on ICOs following the launch of Ethereum and smart contract functionality. However, Back noted that the ICO craze has since died down due to the appeal of “early liquidity”.
Back added that ICOs had made investors a lot of money, but the phenomenon did not necessarily result in products that people can use and value getting to market because ‘incentives are misaligned’.
Trammell Ventures’ report surveyed market data which reflects that 97% of venture capital investments over the past few years flowed into ‘crypto’ and not Bitcoin. Back highlighted ICOs, altcoins, discounted tokens and other crypto projects all attracting investors:
Back said that while the Bitcoin space is being underfunded by this category of investors, builders within the ecosystem “produce more innovation and more product value” when compared to ‘crypto’ ICOs that have attracted the lions’ share of VC spending.
The failure of FTX and implosion of decentralized finance projects like Terra/LUNA may have played a role in a shift in VC funding behaviour as well. Back said that non-Bitcoin crypto products had not seen an increase in investments while Bitcoin startups were seeing renewed interest:
Meanwhile, Jack Dorsey, co-founder of Twitter and a strong supporter of Bitcoin, donated $5 million to Brink, a nonprofit organization that provides support to Bitcoin developers.
Blockstream and Lightning Labs are two major contributors to the upkeep of Bitcoin, each having eight developers who are solely focused on the world’s leading cryptocurrency.
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