Cryptocurrency crash fails to put a dampener on cash-raising fiesta

Continuing to cash in while crypto is crashing…

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Key points

  • Crypto startups racked up a total of US$25 billion in funding last year
  • January saw a continuation in access to capital for crypto companies with FTX and Fireblocks gaining US$1.35 billion
  • One insider expects more to come as the industry matures

Even as cryptocurrency prices take a nosedive, cryptocurrency startups are raking in cash.

In fact, they raised a record $25 billion in 2021. This is an eightfold increase from the previous year.

While some investors may be growing wary of the collapse in cryptocurrency valuations, it doesn't seem to be putting a damper on investment in crypto and blockchain startups.

Taking the picks and shovels approach to cryptocurrency

January was another unkind month for crypto investors, following a trend that began in November last year. During the month, Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) tumbled a further 17% and 29% respectively.

Yet, some private companies operating in the crypto-sphere have been going from strength to strength. In doing so, raising mindboggling amounts of money to fuel more growth.

Crypto derivatives exchange provider, FTX closed another round of funding in January amounting to US$800 million, ballooning its valuation to US$40 billion. The additional injection of funds was backed by Temasak, Paradigm, the Ontario Teachers' Pension Plan Board, and NEA.

In another example of crypto companies raising funds despite the weakness in cryptocurrency prices, digital asset custody start-up Fireblocks scored $550 million in funding. The series E funding pushed the company to a sizeable US$8 billion valuation.

The institutional interest in these types of private companies in the crypto space exhibits a more 'picks and shovels' approach to the volatile industry. To a degree, these companies offer a 'safer' entrance into the growing cryptocurrency market.

US-based crypto exchange, Coinbase Global Inc (NASDAQ: COIN) is an example of this more traditional play. Irrespective of digital asset prices, the company continues to pull in revenue from people using its exchange.

In addition, Coinbase earns a small fee on crypto-assets in its custody. This was last reported to be more than 50% of the US$90 billion on its books.

What is driving this trend?

One would suspect that crypto companies would come under pressure as cryptocurrencies begin to falter. Especially when some spectators are anticipating the dawn of a 'crypto winter'.

So, what could be enticing sophisticated investors and institutions to keep pouring capital into these companies? Well, according to Fireblocks co-founder and CEO Michael Shaulov, part of the reason is maturing of the space.

Shaulov said:

What is very clear to us is that the investment in the infrastructure is not going to stop.

Further to this, the fast-growing crypto company co-founder highlighted more sophisticated uses of cryptocurrency. The potential posed by stablecoins and blockchain-based securities is attracting attention beyond speculation.

Motley Fool contributor Mitchell Lawler owns Bitcoin and Ethereum. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns Bitcoin and Ethereum. The Motley Fool Australia owns Bitcoin and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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