Bitcoin Price Surge Creates Ideal Market for Blockchain Startup Deals

February 10, 2021

Bitcoin has been making headlines recently, particularly after Tesla announced this week that it had purchased $1.5 billion of the cryptocurrency. Tesla will also now accept bitcoin as payment for its products.

The move follows CEO Elon Musk's recent tweets praising bitcoin and dogecoin, which have been credited with pushing up prices of the cryptocurrencies. Musk even recently added the hashtag #bitcoin to his Twitter bio. Bitcoin's price subsequently set a new record, reaching more than $44,000 on Monday.

The activity has set up a bull market for bitcoin and paved the way for a flurry of blockchain startup deals. The recent bitcoin price spike has fueled the strongest quarter for cryptocurrency and blockchain startups since the end of 2018, worth $702 million in the fourth quarter of 2020, according to PitchBook. Bitcoin's price alone has more than tripled since October.

Cryptocurrency-focused venture capital firm Coinbase Ventures, which launched in 2018, was one of the first firms to take advantage of the feverish boom-bust cycles that bitcoin has experienced over the years. That year bitcoin peaked at close to $20,000 before losing half its value in just over a month.

"We recognized in early 2018 that there were a ton of new startups that were leveraging blockchain technology," Shan Aggarwal, Coinbase fund maestro, told PitchBook. The firm believed in the long-term benefits of investing in the blockchain and cryptocurrency ecosystem and would grow to become one of the most active investors in the industry.

Other investment companies would soon follow suit, beefing up investments in blockchain startups as the price of bitcoin and other cryptocurrency has soared over the years. PitchBook data shows that in 2018 alone, those startups received $2.8 billion in close to 400 deals, setting a record for the industry. Investments were repeated on a smaller scale after a smaller bitcoin bump in the middle of 2019.

"We're going to see a lot of entrepreneurs coming into the space," said Paul Veradittakit, a partner at blockchain investor Pantera Capital. Pantera focuses exclusively on ventures, tokens and projects related to blockchain technology, digital currencies and crypto assets.

According to Veradittakit, the products of many blockchain startups are directly tied to the value of cryptocurrencies, so a rise in bitcoin and other crypto prices can directly improve the outlook for those companies.

Additional venture capital firms have been following suit, aggressively investing in blockchain. A16z launched a second crypto fund last year with $515 million, while Union Square Ventures has announced plans to dedicate 30 percent of a recently closed $251 million fund to crypto startups.

Pantera, along with Polychain Capital, Pithia and Blockchain Capital, have each raised funds of more than $100 million for blockchain and cryptocurrency startups since 2018.

To find out more about the explosive industry of blockchain and cryptocurrency, TMC is hosting The Blockchain Event on June 22-25, 2021, at the Miami Beach Convention Center. The event will feature panel discussions, keynotes and case studies discussing the role of blockchain in a variety of industries and vertical markets. It will also examine the increasingly influential position of blockchain in the fintech market as well as its role in creating a new global economy.

Edited by Maurice Nagle

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