The growth of cryptocurrencies and blockchain technology in 2021 also attracted significant investments in the sector as venture capitalists continued to pour more money into the space.
In particular, in 2021, investment capital investment in blockchain technology increased by more than 600% to $14.8 billion from $2.1 billion recorded in 2020, according to GlobalData data.
VC activity was mainly concentrated in North America at $6.8 billion followed by Latin America at $3.4 billion while Europe ranked third at $3 billion. Elsewhere, capital owners in Asia and the Pacific invested $1.6 billion in the sector while the Middle East invested $0.44 billion.
Investments rise despite childhood in blockchain
Investments in the blockchain sector rose in 2021 although the sector is in childhood. However, both investors and consumers aim to exploit the benefits of technology as it is integrated into companies’ IT solutions.
It should be noted that investments have mostly been directed at specific sectors with banking and payments taking the lead.
“One sector that invests heavily in blockchain technology in banking and payments. Blockchain helps the payments industry manage central bank transfers and digital currencies and coding assets, however, it is still a new technology that needs to be fully tested before it can be fully adopted within the payments infrastructure, “said Chris Dinga, payment analyst at GlobalData.
According to the report, despite significant investments in the sector, barriers such as lack of clear regulatory frameworks and inadequate skilled personnel prevent more players from participating.
However, the application of technology is expected to rise in the future led by central banks. More than 90 central banks are already looking at detecting central bank cryptocurrencies (CBDC) that will be powered by blockchain technology.
Moreover, different established companies take the lead in injecting money into blockchain companies because they bet on the growth of technology. In this line, an earlier report noted that Google was classified as the most suitable company for general trading in blockchain with an investment of more than $1.5 billion in space. However, Google provided clarification on its involvement in blockchain financing.
A spokesperson for Google said:
“As the report says, while the small number of BLOCKCHAIN-related companies we have invested in has raised $1.5 billion in total, we have invested only a small fraction of that ourselves.”
Impact of market volatility on VC financing
Interestingly, it would be useful to monitor how VC financing affects 2022 given that the cryptocurrency market has faced significant volatility. Market conditions have also forced some blockchain-powered companies to resort to readjusting their operations.
For example, cryptocurrency lending platforms, Celsius and Voyager Digital have run out of work with a bankruptcy file. At the same time, Coinbase was forced to exchange cryptocurrencies to implement a hiring freeze alongside the rollout of layoffs.
In addition, the actor was also affected by the collapse of the Terra (LUNA) ecosystem that led to the loss of significant investments along with allegations of fraud.