Crypto start-ups: private investment goes against the market flow
The chilly winds of the crypto winter are proving that bitcoin is not, as some hoped, a haven. The downturn in cryptocurrency prices is running in parallel with the sell-off in tech stocks. The 60-day correlation between bitcoin and the Nasdaq Composite index is at an all-time high, according to Arcane Research. Yet crypto start-ups are in line for more funding.
Rising interest rates and fears of recession have hammered demand for digital assets. Collectively, the crypto market has halved in value since the high point last November, according to figures from data aggregator CoinGecko. Scams and the collapse of supposedly stablecoin Terra have lowered investor confidence too. Crypto remains difficult to use, despite payment companies like PayPal offering it as an option.
However, private fundraisers are still looking to invest. There are now 62 crypto-focused unicorns worth $1bn or more, up from 49 at the end of 2021, according to CB Insights. This week, famed Silicon Valley venture capital firm Andreessen Horowitz announced that it had closed a new $4.5bn crypto fund. Money can be used for start-ups or tokens. Never mind that prices are crashing, a16z (as Andreessen is known) says downturns breed innovation.
Yet free-flowing private funding may obscure value, in spite of the price crash. See the recent investment in a buzzword-filled start-up working on “climate solutions, powered by blockchain” from WeWork founder Adam Neumann.
Neumann is known for presiding over WeWork’s spectacular failure to go public in 2019, knocking its valuation from $47bn to $8bn.
Flowcarbon, the start-up he co-founded, will turn carbon credits sold to companies into crypto tokens. It says recording transactions on the blockchain will increase transparency and tokenising credits will allow them to be traded with ease. But it will not solve problems with the supply of credits linked to poor-quality projects in an unregulated market. Still, Flowcarbon has raised $70mn. The crypto winter has not frozen every part of the market.