Demand for cryptocurrency is sustaining record levels of private equity and venture capital investment in blockchain, the technology that powers it.
After raising a record $18.4 billion in 2021, blockchain businesses have attracted a further $5.03 billion in 2022 as of March 24, double the annual amount invested in most of the five years to 2020, according to S&P Global Market Intelligence data.
Cryptocurrency can hedge against inflation, a major headwind, as it is issued in finite amounts and does not fluctuate or erode in value like traditional currency, said Jackie McGuire, an information security research analyst at 451 Research.
Blockchain is "a promising emerging market with solid traction and growth that is delivering returns in multiples," McGuire said, adding that it has applications in other areas including contracts and copyrights, which could offer bigger investment opportunities for the technology.
The need to transform global financial infrastructure is one such opportunity. Big banks, asset managers, exchanges and central banks all need to upgrade their technology, Matthew Le Merle of Blockchain Coinvestors said on a panel at the SuperTechnology North America virtual conference on March 29.
Given the economic incentives tied to the technology, some of the largest banks globally "have built out public blockchain-based infrastructure and are just waiting for that regulatory clarity to push it out," Castle Island Ventures' Matt Walsh said during the panel discussion.
In the U.S., President Joe Biden issued an executive order earlier in March to ensure responsible development of digital assets.
The largest blockchain funding round announced globally since 2010 was for FTX Trading Ltd., which raised $900.0 million in series B financing from investors including Insight Partners and Thoma Bravo LP in July 2021.
Blackstone Inc. and its fund affiliates closed the largest blockchain deal to date, the buyout of India-based Mphasis Ltd. in August 2021.
Among private equity and venture capital funds with investments in blockchain companies, SoftBank Investment Advisers (UK) Ltd. manages two of the largest, with a combined capital pool of $206.58 billion.
Geographically, North America dominates blockchain investments, with 723 transactions and $14.85 billion in gross value since 2016, Market Intelligence data shows.
451 Research is part of S&P Global Market Intelligence.