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VCs Have Fled the Crypto Market Since March’s ‘Black Thursday’

VCs Have Fled the Crypto Market Since March’s ‘Black Thursday’

Published: July 31st, 2020

At the height of the COVID-19 outbreak in April, VC funding for crypto projects plunged by more than half. Since then, numbers from Crunchbase show the overall funding picture for blockchain start-ups has stagnated.

Two groups on the site’s VC ecosystem tracker have posted smallish In tech funding terms) 100-million USD funding increases, a gradual rise from $7.05 billion in Q1 to $7.15 billion in Q3 for one group, and an incremental increase from $21 billion in Q1 to $21.1 billion in Q3 for the other. Neither group saw any funding increases in Q2.

Of course, there have been exceptions. Crowdfunding rounds through ICOs, for example, have been announced. Celsius Network announced a $10 million investment earlier this year, while DeFi Money Market announced a $6 million token sale. Against the broader investment trend to shy away from crypto projects, however, these seem like outliers.

For fledgeling crypto start-ups, what next?

The pandemic has changed the world, and the crypto industry – no stranger to volatility – has been on a particularly wild ride since the outbreak began. The market tumbled in tandem with global trends in mid-March but had posted a phoenix-like recovery by the time Bitcoin switched on it's third scheduled halving in May.

But in action-packed 2020, three months seems like an eternity. The question remains: what happens next? The hammering endured by the global economy and uncertainty about what Autumn will bring could mean less money for speculative or early-stage crypto initiatives.

Some industry-watchers, however, remain positive and even see the post-coronavirus period as a potential boon for crypto entrepreneurs.

Could COVID-19 be an industry ‘opportunity’?

Some analysts have said that COVID-19 has given Bitcoin a boost, at least in terms of interest and exposure to a broader base on potential investors.

CNBC host Ran Neuner (who is also CEO of OnChain Capital) has told viewers recently that many VCs have been spooked by the pandemic and hit the ‘pause’ button for all investments, even where term sheets had been signed. The crypto market hasn’t been immune to the pervading atmosphere of caution. He’s also said that the concerns about the mega-stimulus being pursued by the US Fed has driven flow into Bitcoin and cemented BTC as a legitimate asset class.

While that’s still a minority view, Neuner isn’t alone. Analysts at crypto investors NEM Ventures believe the blockchain industry has ‘dodged the bullet’ in terms of the negative impacts of lockdown. The massive shift towards digital working and collaboration is benefitting digital currencies and payment technologies. Many of blockchain companies in NEM’s portfolio have been able to continue operating as usual despite the pandemic’s restrictions on travel and business activity.

But assuming significant pockets of investor interest in crypto can be found, where will it be focused as the planet emerges from lockdown?

As investor demand for investment new opportunities in digital transformation continues to grow, particularly in categories like contactless payment and trust-based automation, blockchain tech could be a beneficiary.

A market re-shaped by ‘Black Thursday’

March 12, 2020 – ‘Black Thursday’ in crypto lore – dealt a hammer blow to ambitions in the crypto exchange market. The struggle for dominance that kicked-off in 2019 saw several new players take on the incumbent leader of the Bitcoin futures market Bitmex.

As numbers from crypto research firm Coin Metrics confirmed last month, Black Thursday fundamentally shifted the ground.

Bitmex, launched in 2014, was the first exchange of its kind and gave the nascent Bitcoin market a platform for crypto derivatives trading. Bitmex set out a leadership position in Bitcoin futures, settling billions of dollars in contracts each day at one stage. That is until the likes of Binance and Huobi arrived on the scene and started taking chunks out of Bitmex’s market share.

In the aftermath of Black Thursday, Bitmex is the exchange that seems to have suffered most, losing significant share to Binance as it carries on making aggressive moves of its own into Bitcoin derivatives.

Bitmex, pundits have noted, has had an ‘outsized influence’ on price discovery. Because of that, any changing of the guard at the top futures marketplaces for crypto assets could re-shape the Bitcoin market landscape.

Confirming the point, Coin Metrics’ report shows how Bitcoin’s price rose after the infamous DDoS attack Bitmex suffered on Black Thursday. When the cyberattack halted Bitmex’s trading engine, its automated liquidation features – designed to offset losses on the platform – couldn’t meet the pace of liquidations when prices began to sink. A cascading series of sell orders likely pushed prices down even further.

In the aftermath of Black Thursday, Bitmex’s share of the Bitcoin futures market and volume of deposits took a big hit. For many investors, confidence in the exchange’s stability has been lost, and competitors have been reaping the benefit.

Coin Metrics says Bitmex’s total Bitcoin in deposit dropped by ca. 27 per cent from over 300 BTC to under 225 BTC. It’s share of outstanding futures contracts on the platform also plummeted, dropping sharply from 35 per cent to 26 per cent. Overall market share declined from 23 per cent to a bit above 19 per cent.

The biggest beneficiary of Bitmex’s woes has been Binance. Its de-throned the previous king and boosted its share of futures volume from 10 per cent to 23 per cent, while total share of outstanding futures contracts on the platform has grown from 4 per cent to 9.5 per cent.

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