Venture Capitalists Haven’t Forgotten About Blockchain
In Brief
Venture Capitalists Haven’t Forgotten About Blockchain

The billions plowed into blockchain startups in 2018 are looking like the exception, not the rule. But 2019 is continuing a longer upward trend, as venture capitalists look for scalable projects, according to new research.

The first quarter of this calendar year has seen VCs invest $334m in blockchain startups, less than a tenth of the $5.5bn total invested last year, says financial data provider Pitchbook. But if the rate of deals continues this year, 2019 will beat 2017 by roughly a third.

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One of the strongest lures for investors in blockchain at the moment is upscaling potential, says MIT Technology Review. Technical hold-ups have been persistent so far. Zug-based “cloud 3.0” provider Dfinity got more than $100m from VCs last summer with its promise of ‘vastly improved performance’ over Ethereum and ‘unlimited capacity’—but it has not yet launched. Scale issues pose one of the fiercest challenges to decentralized finance, itself another hot area for today’s blockchain investors.

Related: Finance’s Open Source Moment Is Here

Decentralized finance, or DeFi, tends to excite anyone who feels traditional financial institutions are too powerful and rent-seeking. Open-source bank Marble potentially offers financial services to more customers than a conventional bank, and at lower costs. But investors are still worried about regulatory risk and the continuing lack of a link with any traditional assets.

2017’s surge in VC activity coincided with bitcoin trading at unprecedented rates against the dollar. Its price multiplied by five between January and November 2017, then more than tripled again in just two months.

Although VCs are looking at a much more distant horizon than bitcoin speculators, the two markets can be related. Beijing-based Bitmain, which makes hardware specifically designed for bitcoin mining, raised $317m in June 2018—and $1bn more in August—the two biggest VC deals in blockchain’s history. People want to mine more bitcoin when it’s worth more, so investors piling into makers of mining hardware are indirectly betting on the future of bitcoin. With the current jump in bitcoin prices, miners are already jumping back into the market.