The total risk funding in domestic crypto and blockchain startups shot up to $587.16 million as of October 17 this year, compared to $37 million in the previous year, the highest ever, according to data shared with ET by industry tracker Tracxn.
The bulk of the capital has come from international investors eager to cash in on India’s large customer base as they backed companies with significant traction, industry players said.
“We are in a macro bull market rally. There’s a lot of capital on the side lines for high traction firms. There’s also a lot of liquidity; for example, the Coinbase listing in April generated new wealth, which is looking for new places to be deployed,” said Joel John, an investor at digital asset venture capital firm Ledgerprime.
Indian investors are also starting to formulate plans for dedicated crypto funds and experiment with some investments. Industry sources said a few VCs are in the process of setting up India-focussed blockchain and crypto funds that will have a corpus size of $15-$50 million.
Elevation Capital, which has backed startups like Paytm and Swiggy, is deploying actively this year into crypto and blockchain. It has completed multiple deals across crypto investing, nonfungible tokens (NFTs) and gaming, and decentralised finance, a spokesperson said. It also has a dedicated team and expert group working on crypto and is looking to continue being active in this space.
This year, Sequoia India doubled down on its investment in CoinSwitch Kuber and participated in a round and invested in a crypto treasury management platform Coinshift.
John of Ledgerprime said bullish international investors are “not being reckless” and are making calculated bets by exposing a relatively small portion of their overall portfolio.
For instance, Silicon Valley venture fund Andreessen Horowitz recently made its entry into India by pumping in $80 million in crypto platform CoinSwitch Kuber at a valuation of $1.9 billion. The firm runs a Crypto Fund III which is about $2.2 billion in size.
Retail and institutional buyers have also joined the crypto industry in droves.
India has emerged as one of the fastest-growing cryptocurrency markets globally, according to a recent report by Chainanalysis, a New York-based blockchain data platform.
“Large institutional-sized transfers above $10 million worth of cryptocurrency represent 42% of transactions sent from India-based addresses vs 28% for Pakistan and 29% for Vietnam,” it said. “Those numbers suggest that India’s cryptocurrency investors are part of larger, more sophisticated organisations.”
The uptick has happened in the backdrop of regulatory flux in India and talks of a potential ban earlier this year. However, there have been several positive signals from the government that have shifted the conversation away from a ban.
“Relative to nine months ago, we now have multiple Indian crypto unicorns and massive traction for Web 3.0 in the Indian tech sphere,” Balaji Srinivasan, former chief technology officer of global crypto major Coinbase told ET.
“I see Web 3.0 becoming as central to Indian tech as Web 2.0 was to American tech. Web 3.0 is how technology leaves Silicon Valley and puts India — and everyone else — on a completely level playing field. It is India’s opportunity to leapfrog all legacy tech players with Web 3 versions of social media, messaging, finance.”
Web 3.0 refers to the next generation of internet services for websites and applications.
Tanvi Ratna, chief executive of think tank Policy 4.0, said 2021 has marked a huge shift in terms of industry maturity.
“The biggest reason why we have seen a growth in the crypto industry is because there was not a ban in March which was so close to happening,” she said.
The government has also been positive of late and that the fund is on the lookout for exceptional entrepreneurs building projects which solve deep problems, said Pratik Poddar, principal at Nexus Venture Partners.
“The technology is new and existing framework can’t be applied here. But there have been positive signs overall. So, it is ok for investors to invest and help regulators create the right framework as well,” Poddar said.