Why Blockchain Funding May Fall 60% as Technology Loses Allure

Blockchain, the digital information building blocks in data bases seen as transforming industries worldwide, is quickly losing its allure as Bitcoin regains its momentum. Blockchain startups, the biggest recipients of venture capital since 2014 from Silicon Valley and Wall Street, is on track to see a 60% plunge in venture capital funding in 2019, according to CB Insights, per a recent Bloomberg report. Meanwhile, corporate interest in blockchain projects is on “an even sharper decline,” according to CB Insights. This may come as a surprise given announcements from major companies such as Facebook Inc. (FB), who have expanded their blockchain initiatives. 

After reaching an all-time high near $20,000 in December 2017, Bitcoin plunged into a “crypto winter” for the entirety of 2018, reaching lows near $3,000. As Bitcoin and cryptocurrency prices tumbled across the board in 2018, venture capitalists focused their attention on the promise of the underlying technology, the ledger known as blockchain. 

Now, ironically, a decline in funding into the blockchain world coincides with a rally in the price of Bitcoin, the world’s largest cryptocurrency by market capitalization. This year, the digital coin made a sharp comeback, surpassing $13,000 and falling back around $10,300 as of Friday morning. Despite recent pullbacks, the cryptocurrency has still nearly tripled 2019, outpacing the price gains for rival digital coins such as Ethereum and Ripple. 

Nicholas Pappageorge, a senior analyst at CB Insights, explains last year’s record in blockchain venture investments to the fact that “it took a little bit for the enthusiasm to wear off.” 

The worst off amid the drying up of funds in the blockchain space has been maturing startups, per CB insights. Newer companies have fared better. Overall, in 2019 traditional venture capital investments in blockchain companies have totaled $784 million via 227 deals. If this pace proceeds through the year, blockchain technology startups would be on track to generate $1.6 billion in funding, reflecting an approximate 60% plunge from a record $4.1 billion received in 2018, per CB Insights. 

This new trend comes as a growing number of studies demonstrate that blockchain is more expensive and less efficient than expected, and is also vulnerable to hacking. A recent two-year experiment by Germany’s central bank concluded that the technology is no “real breakthrough,” as outlined by Investopedia. That said, blockchain enthusiasts are confident that the technology will prove itself in the long run.