Blockchain Firms Are Raising Lots of Cash Despite Crypto Bear Market

In Brief

• Venture capital investment in crypto firms is on a hot streak, the latest a $40 million fundraise for Toronto-based Horizon blockchain gaming.
• NYDIG recently raised over $700 million for its bitcoin fund.
• While ETPs have shown increase outflow, asset managers are standing firm.

Institutional funds continue to flow into the crypto space as traditional and crypto companies look to build strength in the bear market.

As retail investors dump cryptocurrencies, institutional investors are piling into the space, seeing it as an opportunity to determine their digital asset strategy ahead of the next bull market. Two trends seem to be emerging: increasing crypto-focused venture capital investments and more traditional asset managers giving institutional clients access to crypto assets.

Following the New York Digital Currency Group’s $720 million fundraiser, Brevan Howard Digital and Morgan Creek Digital recently led a $40 million funding round for blockchain game company Horizon Blockchain Games. Horizon, based in Toronto, will use the funds to construct its gaming developer platform Sequence, Niftyswap, an NFT marketplace, and a digital trading card game.

Brevan Howard Digital provides institutional investors access to crypto assets, while Morgan Creek Digital counts Solana, 1inch Network, and Coinbase as part of its investment portfolio. Video game giants Ubisoft and Take-Two Interactive Software were also part of the fundraiser.

In late Sep. 2022, NYDIG raised roughly $720 million for a bitcoin fund, according to an SEC filing. The company behind the NFT collection Doodles raised $54 million from Reddit co-founder Alexis Ohanian’s VC firm Seven Seven Six and FTX Ventures in mid-Sep. 2022 to fund music and gaming business lines.

Mining company Rhodium Enterprises recently announced that it plans to raise funds through a reverse merger with SilverSun Technologies, a company that acquires and builds out tech and software companies. Following the merger, SilverSun shareholders will be granted a roughly 3% equity ownership stake in Rhodium.

BlackRock backs crypto, a signal to TradFi firms
BlackRock, the world’s largest asset manager, recently floated plans to launch a spot bitcoin private trust. Private trusts rely on the price of an underlying asset and are listed on a public stock exchange. Investors can buy shares of the trust using a brokerage account, negating the need for them to hold bitcoin directly. The trust company takes money from institutional investors and buys bitcoin or another crypto asset, which it stores in a fund. This makes the institution holders of the digital asset rather than the investors.

BlackRock’s recent partnership with Coinbase is designed to allow its institutional investors to access products from Coinbase’s Prime offering using BlackRock’s Aladdin asset management software.

UK company Abrdn recently purchased a stake in Archax, a crypto exchange.

ETPs ready for a bull run despite outflows
Despite the slump in crypto prices, asset managers, including Charles Schwab, launched 40 cryptocurrency exchange-traded products in 2022. Crypto outflows from crypto exchange-traded products have slowed as most retail investors have fled the market. In Q3, investors withdrew roughly $18 million from crypto ETPs, compared to over $600 million.

But Kenneth Lamont of Morningstar told the Financial Times that these moves by asset managers could be proactive and that ETPs are “being launched in anticipation of the next crypto bull run.”

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