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Investors and VCs must adopt crypto financial services in 2024
Disclosure: The views and opinions expressed herein belong solely to the author and do not represent the views and opinions of crypto.news editorial.
Crypto Startups secure more than $90 billion in funding by February 2024, with more than 230 transactions and nearly $1.3 billion at the start of the year. Venture capitalists have mainly funded decentralized finance, infrastructure, blockchain gaming, NFT and web3 projects.
However, only a tiny part of the funding was allocated to crypto financial services in 2024. This is in stark contrast to previous years, particularly during the 2021 bull market, when this sector accounted for a substantial portion of VC investment.
Despite this recent trend, I believe investors should not overlook the cryptocurrency financial services landscape. If anything, it’s a market they should be paying closer attention to, especially as it’s well-positioned to become one of the most attractive sectors for crypto VC investments in the years to come.
Why crypto financial services deserve so much more
The relative funding lag of the crypto financial services sector this year can be attributed to several factors, drawing lessons from the broader financial and technology landscape. First, crypto financial services involve many rules and regulations, which can be difficult to understand. This area is closely monitored by governments and agencies, making it a bit complex compared to freer sectors like blockchain gaming or NFTs. Uncertainty about what new rules might come into effect can make investors nervous.
Then there’s the lure of the new and shiny. It’s easy to get excited about projects that allow people to trade digital art or play blockchain-based games. They’re cool, they’re headline-grabbing, and they promise a whole new world of digital ownership and fun. Compared to these, the financial services industry can seem a little old-fashioned.
But there you have it: crypto financial services play a crucial role in the digital asset sector. In fact, they are the backbone that supports everything else in the world of cryptocurrencies. Without them, it would be difficult to buy, sell, or do anything with cryptocurrencies safely. This sector aims to ensure that people can use their coins without a hitch, by offering essential services such as paying with digital assets, keeping them secure and even helping businesses use crypto.
Investing in this sector may not seem as glamorous as buying the next hot NFT, but it holds enormous potential. As crypto becomes integrated into everyday finance, its supporting services will be increasingly in demand. Despite its current funding status, this is a long-term project.
Focus, don’t neglect it
Investors and venture capitalists should monitor the crypto financial services sector for several good reasons. Firstly, as I mentioned earlier, it forms the backbone of the digital asset world, including critical solutions such as exchanges, payment products and cryptocurrency management. As the crypto market grows, these services become more prominent, providing investors with a solid opportunity.
Second, the rules surrounding cryptocurrencies are starting to become more obvious. This development is good news because it makes the crypto financial services sector less risky and more attractive to investors. Companies that know how to follow these rules could do very well.
Third, big players are interested in cryptocurrencies and large institutions are starting to gain exposure to this asset class through exchange-traded funds. As institutional clients require the financial services of this sector, this could result in more activity and growth for companies in this sector.
Finally, there is plenty of room for new and innovative ideas in crypto financial services. This gives investors the opportunity to back companies that have the potential to disrupt traditional finance and grow.
Back in the spotlight
To attract more investment, projects in the sector must show that they respect the rules. They must make it clear that they follow all rules and ensure the security of their clients’ assets. This makes investors more comfortable in investing their money.
Crypto financial services companies must also clearly explain what they do, why they are needed, and how they can grow to help investors see the potential for significant returns. At the same time, having a go-to team with expertise in both finance and technology can make a significant difference. For investors, this shows that the company can handle the complex world of crypto.
Additionally, crypto financial services companies that can work well with traditional financial and technology companies might have a better chance of success. This shows how serious they are and whether they can fit into the wider world of TradFi.
Focusing on these areas could make the crypto financial services sector more attractive to investors, helping it grow and become an even more critical part of the financial sector.
A sector well positioned for future crypto VC funding
Given current trends and developments, it is likely that cryptocurrency financial services will attract more investment over the next two to three years.
One of the reasons I’m optimistic about the future of the industry is that more and more large companies want to get into crypto. They need safe and reliable services to help them get there, which could mean more business for digital asset financial companies.
Additionally, as the government clarifies the rules regarding crypto, people will be more comfortable investing in it. So, this could bring more money to cryptocurrency financial services.
Improving technology is improving crypto financial services, attracting investors looking for innovative opportunities. Companies are now offering crypto insurance, payments and loans, which could generate even more investment. The growing use of crypto raises the need to support financial services, which could lead to increased investment in the sector.
With the involvement of large companies, clearer rules, better technology, more services and increasing adoption of crypto, the financial services sector of the digital assets industry could become a hot spot for capital investments -risk over the next two years.
Eugene Krasicki
Eugene Krasicki is the founder and CEO of neobank Keytom, a bank for all digital assets. An impact entrepreneur with over 15 years of expertise, he has carved his path in diverse industries, from manufacturing and fine wine to real estate and banking. Beyond his entrepreneurial activities, Eugene has a deep interest in alternative investments, recognizing their potential to diversify portfolios and generate long-term returns.