Blockchain companies have raised nearly $2.1 billion via ICOs this year, raking in $1.2 billion in 3Q alone, per CoinDesk. Meanwhile, VCs have invested $634 million in the same space thus far in 2017, according to the PitchBook Platform, a peak year for venture capital in blockchain startups but nowhere near the amount secured from token sales.
This method of funding has shifted power into founders' hands but also closed them off from the benefits of the VC industry. But if crypto-founders are turning their backs on VCs in favor of token sales, might VCs be better off skipping equity investments in blockchain companies and buying bitcoin instead? After all, buying digital currency can give investors of all sizes exposure to venture-like returns without the lockups or regulatory friction.
Bitcoin price (USD)
In our most recent fintech analyst note, we looked at PitchBook valuations data for 32 VC deals involving investments in blockchain companies, noting that 16 follow-on financings produced valuations that rose at a higher pace than the price of bitcoin during the same period—not accounting for survivorship bias (i.e., only successful companies stick around long enough to raise additional funding).
This trend has driven a number of VCs to form cryptocurrency hedge funds that combine the technology analysis and moonshot bets of VC investing with the trading desks, risk management protocols and cybersecurity of institutional hedge funds. In a report published in late August, fintech researcher Autonomous Next identified 75 crypto hedge funds, including Crypto Lotus, Medici Crypto and Cryptor Trust.