Blockchain Investments May Decline by 60% in 2019 – Is it Bitcoin, not Blockchain?
A CB Insights report predicted blockchain venture funding would decline by 60 percent in 2019 compared to the previous year; but that does not mean blockchain has failed.
“Blockchain, not Bitcoin” was the ongoing narrative during last year’s crypto-winter. Bitcoin is dead, but blockchain has potential, was the common opinion.
Now that Bitcoin was resurrected from the dead, the tables may have turned, and it’s all about Bitcoin again. As the focus shifting back to digital currencies, is blockchain still worth talking about, or is there only room for one star on this stage?
Some believe a recent CB Insights report may hold the answer. According to the report, blockchain-related venture capital investments may drop by 60 percent in 2019.
Nicholas Pappageorge, senior analyst at CB Insights, explained that “It took a little bit for the enthusiasm to wear off,” suggesting that most blockchain venture capital investment was purely hype-driven.
But this conclusion seems oversimplified. While blockchain’s increasing maturity on the technology hype cycle might be one reason why investments have dropped, the full story is more complex.
Capturing reliable blockchain funding data is challenging; blockchain is not a startup technology anymore
According to CB Insights, blockchain companies have received $4.1 billion in venutre capital funding in 2018. In the first half of 2019, this number stood at $784 million and the analysts expect it to climb to $1.6 million by December 2019. That would represent a 61 percent reduction in blockchain venture funding compared to the previous year.
However, these numbers need to be interpreted in context; the market environment has changed fundamentally since 2018.
Blockchain has evolved from being a startup technology into the mainstream, and various multinational corporations have started pilot projects. These companies won’t publish exact numbers and keep their internal R&D efforts secret, making it unlikely that CB Insights has gained a complete picture of the space.
Additionally, China is the second-largest blockchain market, and getting reliable data out of China is a tricky business. Thus, even if CB Insights might be right in saying blockchain venture funding has dropped, the 60 percent figure is questionable.
Decline not surprising; blockchain companies are in a better financial position
A drop in blockchain venture funding is also not surprising and doesn’t mean the technology is not being applied successfully. Many of the early day’s blockchain startups are out of business – which is standard in a young industry – and those that survived have gone over into the testing phase, meaning the technological platforms have already been developed.
Companies also don’t need enormous funds to create a blockchain application. The technology is neither expensive nor particularly sophisticated – the adoption is key for success. Thus, an initial investment round can go a long way.
The recent price hikes in digital currency markets have affected venture funding as well. Many blockchain startups hold large amounts of digital currencies in their corporate wallets. During the crypto winter, these funds lost more than 70 percent in value, meaning businesses were running low on cash and desperately needed external funding.
With the leading digital currencies gaining massive value since the end of last the year, many of those startups are in a much better financial position today than they were in 2018.
Lastly, Pappageorge is also right; the blockchain hype has faded away by now. The industry, including venture capital investors, has become more professional and the focus has shifted from the underlying technology to practical, real-world use cases – overall, that’s a positive development.