While Funding Cools for Payments Generally, Bitcoin And Blockchain Reap a Rich Harvest

Venture funding for payments companies may have slowed dramatically in recent months, but that’s not the case across the board. Bitcoin and blockchain startups in particular uncorked a geyser of cash in the first quarter, with dollars invested totaling $173 million on 39 deals, according to data released this week by CB Insights, a New York City-based firm that follows tech investing.

That represents an abrupt about-face from a dismal fourth quarter that saw just $36 million from 32 deals, the numbers show. It’s also the biggest quarter for Bitcoin and blockchain funding since the first three months of 2015, when investors poured a record $223 million into the sector on 28 deals.

By contrast, funding for payments firms overall cooled off late last year, a trend that continued through March. While 2015’s third quarter generated a robust $1.62 billion on 66 deals, the fourth quarter sank to $253 million. The first three months of this year weren’t much better, with $396 million invested through 75 deals.

Indeed, the longer-term trend is looking strong for companies that process Bitcoin for merchants and consumers, as well as for those developing applications for the blockchain, the distributed-ledger technology that underpins the digital currency but also has numerous other applications. Total investment last year came to $496 million on 131 deals, up 45% from $341 million in 2014, according to the CB Insights figures. And funding in 2013 was just $89 million.

The biggest deals last quarter were funding rounds for Bitcoin startup Digital Asset Holdings, (a $60 million Series A), smart contracts developer Blockstream (a $55 million Series A), and Bitcoin exchange bitFlyer (a $26 million Series C).

Interest in blockchain technology for both cryptocurrency and non-payments applications like property titles, securities settlements, and even car sales, is clearly heating up. There were 59 blockchain companies extant at the end of March, up from just 14 a year earlier, according to numbers compiled by CoinDesk.

Bitcoin, too, is enjoying remarkable growth, despite challenges including price volatility and scorching internal debates over how to increase transaction capacity. The number of Bitcoin wallets totaled 13.5 million at the end of the first quarter, a 60% increase in one year, according to CoinDesk. And despite its sometimes wild price swings, Bitcoin’s value has been generally trending up lately.

Nonetheless, the CoinDesk data clearly shows investment trends shifting markedly toward blockchain technology, defined as technology for both payments and non-payments applications. While Bitcoin commanded fully 96% of the total flow of funding for Bitcoin and blockchain firms in the fourth quarter, the first quarter saw a dramatic flip-flop to an 84% share for blockchain. Even earlier in 2015, Bitcoin had claimed a steady 53% share of investment dollars in the second and third quarters.