Blockchain vs AI: who will win the battle for venture money
While in 2017, when the word “blockchain” was mentioned, the value of the company increased by several times, now investors are less willing to bring money to such projects. LetKnow.News decided to figure out how investor preferences have changed in recent years and what industries are now in trend.
The blockchain industry has existed for 10 years, but it became popular among venture investors only 5–6 years ago. The greatest interest in the innovative technology was generated by Digital Currency Group, Pantera Capital, Blockchain Capital and Sequoia Capital. It is thanks to these venture companies that there are such giants as Coinbase, Binance, Circle, Ledger and Ripple that are actively building and developing the crypto industry.
The heyday of the blockchain industry
If we talk about the volume of investments raised, then the heyday of the blockchain industry falls on the last year. According to Outlier Ventures, compared to 2017, in the third quarter of 2018, investments in the crypto industry grew by 316% to $ 2.85 billion. Over this period, more than 119 transactions were closed and more than 50 crypto companies were bought. And by the end of the year, according to PitchBook, the volume of venture investments in blockchain projects reached a record $ 5.5 billion.
In addition, it was in 2018 when the ICO boom took place. It was the period of HYIP (High Yield Investment Program), when retail investors managed to fix 200%, and sometimes even 1000% in profits. However, the excitement among investors and the search for the “next bitcoin” eventually led investors to a standstill. According to Satis Group LLC, 80% of the ICOs turned out to be scams, which negatively affected the entire industry and led to the so-called ICO bubble, which eventually burst.
The volume of venture investments in blockchain companies. Source — MIT Technology Review
Change of trends among venture capitalists
At the same time, 2019 with its “crypto winter” turned out to be less rosy for the industry. According to Outlier Ventures, venture capital investors invested just $822 million in blockchain projects within the first six months.
Therefore, when compared to the previous year, during which bullish sentiment reigned the cryptocurrency market, the dynamics of venture investments in the industry decreased. Even the new safe method of private investment in crypto projects — IEO (initial exchange placement) did not help.
Also, in a recent Outlier Ventures report, analysts concluded that the flow of investment has shifted from developing cryptocurrencies to related fields. The area of artificial intelligence attracts the most funding: 33.8% of the funds were invested in it, 14.7% in banking, 10.9% in analytical services, and 10.7% in technological applications.
“In general, all these leading areas are the IT sector. Artificial intelligence will greatly change almost all areas of life. It is one of the most explosive technologies and no one has any doubt about it. Therefore, AI is of great interest for investments,”explains Maxim Korkodinov, the head of analytics at CryptoRank.io.
Where is venture investment going
According to Venture Scanner, within the first two quarters of 2019, venture investments in artificial intelligence companies reached $11 billion. It is expected that by the end of this year, the volume of investment in AI will grow up to $27.3 billion. If comparedto 2013, the blockchain companies raised just $23.7 billion. This means that the crypto industry has raised less money in 6 years than AI will raise in one year.
Also, according to Maxim Korkodinov, in addition to AI, there was a hype around beyond meat and impossible foods — i.e. manufacturers of meat substitutes.
“Investments in medicine and pharmaceuticals, as well as in areas of business related to adults and ageing population, are quite common,” claims the specialist.
Thus, although the cryptocurrency market has shown rapid growth over the past 10 years, there are still problems in the industry with blockchain systems’ scaling and their bandwidthincrease.
Moreover, despite the fact that in 2018, investors invested a record $ 5.5 billion in crypto projects, their interest is shifting towards more stable companies. After all, the profit of the latter does not depend on the rate of cryptocurrencies, and they solve more understandable technological problems. That includes the artificial intelligence industry, which raises more and more venture capital investments and shows real results, not just white paper projects.
Author: Annabella Lapshina
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