How Much Money is Really Flowing in the Crypto World?

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When large financial institutions start to take crypto seriously, investors take notice. Crypto enthusiast Chris MacDonald and Eric Bleeker of The Motley Fool discuss what the growing influx of capital into the crypto world could mean for space – in this episode of “The Crypto Show” from Backstage Pass, recorded on November 10.

Eric Bleeker: That concludes the information segments. I mentioned that I wanted to dig deeper into crypto in the VC world.

As I mentioned earlier, we have listened to our members. We want to make it a members-only show. We want to answer the questions you ask yourself in space. Often this week, if we’re running a long time and can’t get any questions, I’ll take all the questions and we’ll try to answer them next week. We had a few questions about how venture capital is flowing into the crypto world. I have done some research on this, I want to present some conclusions.

What we have here are two numbers from 2016-2020. That would be, I guess, five years of data from 2021, and those are the main venture capital funds and the number of rounds they participate in, in the crypto space.

You see Andreessen Horowitz who has been way ahead of the other venture capitalists in this space, definitely the leader. They had 39 in those five years and 29 this year, so a massive acceleration. But below, I think this graph gets really interesting. You see the whole overall management at 2-14. You can watch Sequoia Capital below at 10-15, but Sequoia is now changing its tenure. I think they are looking to invest 25% in the crypto space.

Chris, we talked about what will drive crypto beyond internet money, digital gold, and technological innovation. It seems like those most plugged into innovation in the tech space are seeing extremely clear signals about where they want to invest over the next five years.

Chris MacDonald: I think that’s a very good point. I think more capital in the crypto space is always a good thing for sure.

Many crypto investors will look at this from a dollar sign perspective. What’s the number behind that? And whether it’s the number of spins per spend or the total dollar amount. But I think, like you said, a lot of crypto investors look up the names of those who invest in this and try to …. We’re not all the smartest people in the room. There are just people who know a lot more than we do. Looking at what thought leaders are doing in this space and where they are investing, it’s pretty clear that there is a solid trend that it’s not just retail investors who buy crypto.

There is a lot of money starting to recognize the usefulness that crypto can create and the future of the direction the digital world is taking.

Bleeker: You said we want to watch the dollars, I want to make sure we get there. Let’s see what drives a large part of this investment.

We have great financial services. Companies like Visa (NYSE: V) and PayPal (NASDAQ: PYPL) have helped validate the industry and even Facebook [Meta Platforms (NYSE:FB)] plans his own digital wallet and currency, now called Diem. Big crypto players such as Coinbase (NASDAQ: COIN), with a market cap of 65.5 billion. Circle and Robinhood (NASDAQ: HOOD) have gone public to further justify the space and show venture capitalists the size of the space and the volume of transactions they process.

And I bolted that. These events likely prompted many of these large, growing companies to double or triple – or 7X in Tiger’s case – their bets in the crypto world of years past.

Chris, I think this is something we cover a lot but talked about the angles of investing in crypto. I roughly divided into five dimensions. You have the miners and the people on this side. We basically have layer 1 platforms. We have apps built on top of cryptocurrencies and we also have things like public companies or UI games and then more broadly in the fintech space. Those companies like Visa and PayPal, crypto probably won’t be something that will be at the heart of their investment thesis, but looking at what they are doing and validating the space, it basically starts a virtuous cycle when you have all of the biggest tech companies invest in crypto.

MacDonald: Yeah, I think that’s a really good way to think about it when you divide the crypto world into these segments.

Because when you think about how crypto started, whether it was Bitcoin miners or just crypto nerds who basically look at this space and say, well, that’s interesting and I want to somehow so enter it. I do not understand it. It is very complex.

When you read a white paper on some of them, it gets into the weeds of some pretty awesome math algorithms and stuff like that. The actual nuts and bolts of it are very difficult to figure out. So when big companies like Visa, PayPal, Facebook step into the space to make it easier and more accessible, Coinbase has done so by providing a user interface where investors can click a button and buy something. It hasn’t always been that easy.

The world of crypto, with these companies coming in and doing their own projects on top of what’s out there right now, it just allows for greater adoption and ease of investment. As these things get easier to invest, as we’ve talked about, capital flows will improve and we’ll see the continued adoption of this theory move forward.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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