The development of cryptocurrency companies is complicated by the peculiarities of the digital coin’s behaviour. Venture capital is able to provide a quick start, which provides for a quick income or a share of shares in the startup. What is the peculiarity of this investment, and why the exchange rate may change because of this?
What is venture capital and its role in cryptocurrency projects?
Venture capital is a financial investment that has a specific direction. Such investments are invested in young businesses with high growth potential, which do not have an established share capital or are in the initial stage of growth in the blockchain sectors.
This kind of financial investment is the most viable option for young companies, as banking institutions refuse to lend to them due to the high percentage of risk. It is the English word ‘venture’ that has become the basis for the definition of this type of investment.
Main features of financing in cryptocurrency projects:
Institutional investors invest in crypto startups at the initial stages of development. Investments help companies to launch a product, develop their technologies and gather a team of qualified specialists.
The investors’ responsibilities inсlude not only disbursement of funds, but also support from the technical and organisational side. They help to make strategic planning, develop the right marketing moves, and provide a network of contacts to build an appropriate customer base.
Cryptocurrency projects are considered high risk as they have unstable financial performance. Venture capital plays a very important role in this case as it helps in assessing the viability of startups. Investors, before investing money, conduct a thorough analysis of all aspects, namely, business models and technologies. Based on the results, a decision is made whether the project will be developed with their help or not.
Investments in blockchain act as a kind of catalyst for innovative solutions in the cryptocurrency sphere. They contribute to the development of new products that can fundamentally change the situation in the market.
Scaling up the business is another result of using venture investments. With their help, market entry is faster and less costly.
Venture capital helps shape a secure blockchain ecosystem. It provides an opportunity to operate transparently and in compliance with all legal regulations.
Venture capital funds are the engine of progress in the cryptocurrency world. Wide opportunities and the ability to minimise risks allow startups to establish themselves in sustainable positions. Such a role positively influences the work of exchanges that perform money transfers to all corners of the world.
Historical overview of investments in cryptocurrency projects
Attracting capital in cryptocurrency today has the most record figures. Their amount exceeds more than $17.8 billion.
The path to such indicators began simultaneously with the appearance of the first digital coin – bitcoin. Gradual growth in the value of the currency began to attract investors.
The years 2013-2015 are famous for the first large venture capital investments in crypto money, as it was at this time that innovative technologies had huge potential.
2014 saw the largest investment in a cryptocurrency exchange. Andreessen Horowitz invested to the tune of $25 million.
The year 2017 is famous for the investment boom of initial coin offerings (ICOs). Startups began to attract huge amounts of finances to themselves through the realisation of tokens. This in turn allowed them to grow rapidly. This time is also characterised by large-scale hacker attacks.
The period from 2017 to 2018 has the name ‘cryptozyme’. In 2017, the price of tokens fell sharply and the first attempts to control cryptocurrency projects appeared.
2020 became a year of revival as investor interest returned. During this period, large corporations, hedge and pension funds began investing hundreds of billions of dollars in bitcoin. Decentralised Finance (DeFi) and NFT (NFT) also returned interest at this time. These segments of the crypto sphere gave rise to new projects.
The year 2023-2024 is considered to be the beginning of the transition of the conventional payment systеm to a new level of development, namely the adoption of cryptocurrency as a means of payment.
A brief description of history shows that investments in cryptocurrency projects from the beginning of their existence have changed significantly and went from small investments to billion-dollar investments.
Venture capital return factors in cryptocurrency projects
A historical excursion indicates that at a certain period of time, venture capital stopped being channelled into cryptocurrency projects. The high volatility of the digital coin market and the lack of legal regulation are to blame. Long-term investments in startups have come back on track due to dramatic changes that have increased confidence in this technology. Rebounding factors:
Quality infrastructure development. The crypto industry has grown significantly since its inception. It has become more secure and developed. Stock exchanges have emerged that operate in accordance with regulatory requirements and guarantee the reliable safety of cryptocurrency.
Increased institutional involvement. Trends of investment in virtual currency were supported by the largest funds and exchanges, thanks to which the cryptocurrency market stabilised.
Risks and returns. Investments in cryptocurrency have shown that the profitability of such projects prevails over possible losses. Undoubtedly, this stimulated investors to make new investments.
Transparent legal regulation. Legal uncertainty no longer frightens investors. Regulatory bodies of the countries where cryptocurrency is circulating have become more attentive to this asset. They have issued regulations and are intensively developing laws that allow institutional investors to feel protected in this environment.
Blockchain startups have also returned investment because of the development of decentralised DeFi systems and NFT digital assets. With the emergence of these digital assets, the exchanges have expanded their services, allowing users to exchange assets efficiently and quickly.
The role of DeFi and NFT in attracting investors
Decentralised finance and non-replaceable tokens are two areas that play a crucial role in attracting new investors to the crypto industry.
Let’s take a closer look at this concept.
DeFi is a financial ecosystem based on a public blockchain. It operates directly, without the involvement of intermediaries (banks). It is based on such elements as smart contracts, liquidity protocols, lending platforms and decentralised exchanges. The main features of decentralised finance are:
Accessibility. Anyone who has access to an internet network can use the services of this application. It allows you to take advantage of those opportunities that are not included in the list of banking institutions.
Profitability. DeFi gives a chance to make good profits from farming, steaking, lending, liquidity. The wide range of options attracts both retail and institutional investors.
Innovation. This sector of decentralised finance fosters new tools and services. The growth of innovative programmes does not go unnoticed by venture capitalists who focus on cutting-edge technologies.
Diversification. DeFi allows investors to build a portfolio according to their needs, thereby freeing up assets for new investments.
DeFi sector is considered a good alternative to traditional financial services. Its main advantage is its absolute independence from working hours, as all its work is automated and takes place in real time.
NFT is a non-replaceable token that is stored on the blockchain. The main feature of this digital object is its uniqueness. It cannot be replaced by alternative coins. The main characteristics of this direction:
Under the guise of tokens are different works of digital art, such as music, paintings, collectibles. It is such a feature that served to assign the name ‘irreplaceable’, so it is impossible to rеplace them. This property has opened new horizons for artists, collectors, musicians to expand their activities and attract investors to their sphere.
Ownership. Financial technologies of this kind are reliably protected from fraud and various speculations. For investors, the availability of the ability to confirm the right of ownership is a signal for safe investment.
Gamification. Non-mutually exchangeable token is often used in virtual games, which in turn allows for monetisation. This form of the new economy is particularly attractive to investors.
NFT is rapidly popularising, especially among well-known brands, celebrities and new investors.
Decentralised finance and non-interchangeable tokens have greatly expanded the boundaries of the cryptocurrency world. Both large investors and individuals are interested in digital assets. DeFi funding for startups is where huge profits are planned. NFTs are a real breakthrough for digital art as they are the ones that have made it possible to share unique works of art without fear.
Benefits of investing in cryptocurrency startups
Investing strategies are a specialised approach where all the peculiarities of the cryptocurrency industry are taken into account. Financing startups involves a complete analysis of the activity, thanks to which the investor receives a huge range of benefits:
high level of income;
expansion of innovative opportunities;
large-scale impact, as the digital coin does not depend on territorial location;
reduced costs and risks with prompt exit from the investment;
decentralised management.
Venture capital investment allows you to keep pace with global trends and innovative technologies while opening up global opportunities.
Conclusion
The initial startup ecosystem has a limited resource that does not allow for a quick entry into the cryptocurrency market. Investment in the form of venture capital guarantees a lightning-fast exit with minimal risk of loss.
FAQ
What role does venture capital play in the cryptocurrency world?
Venture capital allows you to get a foothold faster.
Who can benefit from this type of funding?
Startups that don’t have established status capital.
What is the risk of using this type of investment?
Minimal. Provided that all processes are handled professionally.
