2019 has not been a bad year for crypto as some assets, including Bitcoin, have seen more than 100% in ROI. However, funding is significantly reduced and venture capitalists seem to be backing off. Why is this happening?
The bear market which started in 2018 was a very disappointing period in crypto. This was made worse by the fact that Bitcoin hit its all-time high of $20,000 just a few months before the market crumbled. The period also saw the highest points hit by the entire market as market cap rose up to $700 billion.
However, and quite sadly, it would seem like those glory days are long gone and according to a recent Crunchbase Report, the inability of the sector to find its previous footing has been negatively impacting the sheer number and size of cryptocurrency and blockchain deals in 2019.
2018, even as biting as the bear market was, saw a lot more funding from the private sector whether geared towards funding specific crypto and blockchain projects or support for new assets in the form of ICOs. The report states that investments by the end of last year almost hit $13 billion, as low as the market was and so far, in the 9th month of 2019, the sector is yet to see $3.5 billion.
The sector has several thousand digital assets with a lot more coming in and there might also be increased adoption up to the point where more than a few countries are working on their own Central Bank Digital Currencies (CBDC). Regardless, Bitcoin still has a >70% market dominance with its market cap nearing $186 billion of the entire sector’s $264 billion.
Blockchain Isn’t Dead, But It Needs Life
Adoption of blockchain technology isn’t at all dead. Recently, for example, the municipality of São Paulo in Brazil announced that it had contracted a firm to create a blockchain registry for all of its public works and infrastructure, to ensure increased transparency.
Away from Brazil, there are many other fine examples all over the world but regardless, venture capitalists who were hitherto extremely fired up about the tech, might be taking two steps back. For example, firms like Blockchain Capital and the Digital Currency Group who were visibly active with investments seemed to have a lackadaisical approach this year.
According to the report, investment into blockchain technology last year stood at about $4.65 billion. So far, 2019 cannot boast of half of that with the year’s figure sitting around $2 billion. One specific example here is Andreessen Horowitz. The popular venture capitalist firm based in Silicon Valley has this year, participated in only about five funding rounds, worth around $75 million. In contrast, the same firm backed at least 14 different projects last year, with a total valuation of $850 million.
Why Is This Happening?
There might be no real way to tell the exact reason for this problem, but there are factors that could be considered. Firstly, there is the problem of adoption. There are still too many people who know next to nothing about blockchain or crypto and aren’t the least bit interested. Secondly, the nascent nature of the technology seems to affect its “fine-tuning”, making it a great option in some way but quite inadequate in others. As Andreessen Horowitz put it:
“Blockchain computers are new types of computers where the unique capability is trust between users, developers, and the platform itself…In exchange for these new capabilities, blockchain computers trade off other capabilities such as transaction scalability.”
In all fairness, issues surrounding scalability have plagued the sector for a long time and even though there is progress, the sector might still be a considerable distance from the scalability promised land. So far, the bears aren’t winning, but the bulls aren’t having a field day as well. Could investment pick up if a new rally begins and is sustained considerably?