At the end of 3Q 2016, the total bitcoin venture capital investments were estimated to be around US$330 million, which is considerably lower than in the same period of 2015. Let us see, why.
The 2016’s investment leaders are bitFlyer and Circle with the total of about US$170 million of attracted funds, against the last year’s exchanges and service providers 21 Inc, Coinbase and Circle that secured over US$230 million in their funding rounds.
One major reason behind the slump of bitcoin investment in 2016 is presumed to be the overall slowing VC growth rate, which has continued to decrease since the 3Q of 2014. From 2014 to 2015, the annual percentage growth fell from 280% to 36%.
Understandably, venture capital firms and angel investors are mostly looking for startups that drive high margin profits through innovative and secure bitcoin services. Therefore, bitcoin exchanges and payment service providers, which generate fairly steady revenues, dominate the VC market.
The decreasing growth rate of VC investments also coincides with the increasing interests of banks towards the blockchain technology. Since early 2015, banks and financial institutions have begun to form independent consortiums, associations and development teams to exploit the distributed ledger.
More banks and tech corporations have shifted from granting funds to third party developers and bitcoin companies to funding their own operations. For instance, R3 consortium and the IBM blockchain-as-a-service project are funded by the project leaders themselves, which have created a closed community and ecosystem to develop private distributed ledger-based networks and platforms.
Naturally, VC funding in blockchain startups has significantly decreased in 2016, in comparison to 2015. Two of the few companies that have secured multi-million funding rounds this year were former JP Morgan executive’s Digital Asset Holdings and Ripple Labs, which are collaborating with the financial sector’s leading banks and financial institutions in the development and deployment of cross-border payment networks.
However, several exchanges including Bitt and bitFlyer managed to secure massive Series A and C funding rounds, securing US$16 million and $27 million respectively. Such investments are a good sign for the bitcoin industry as both companies are aiming to bring solid and robust exchange services into countries and regions with weak bitcoin infrastructures.