According to data from a research firm, PitchBook, venture capital investments in crypto startups fell to their lowest since 2020. The collapse of FTX has certainly made private investors think about the wobbly nature of crypto.
Alex Thorn, head of firmwide research at crypto financial services provider Galaxy Digital, said that the collapse of the crypto lending firm Celsius Network already brought the VCs to a pause. Later, the TerraUSD stablecoin crashed which was followed by the shutting of The Three Arrows Capital, the hedge fund. The collapse of FTX was one of the biggest collapses in the history of the crypto world. This definitely made investors saturated and pull out from the crypto startups. The prices kept falling lower, hence, leaving the investors with no choice rather than to pasture in greener grass.
The drastic drop in Venture Capital investments (VCs)
Crypto startups saw a downfall of 75%, in VC investments, from the last quarter of 2021. Only 2.30 billion USD investment in startups was made in the last quarter of 2022.
“Investors are trying to see what’s going to happen next and there isn’t a rush to deploy capital,”
said Robert Le, crypto analyst, Pitchbook.
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The retreat contrasts with the enthusiasm for cryptocurrencies at the beginning of 2022. While VC firms like Andreessen Horowitz, Haun Ventures, and Electric Capital raised billions of dollars to support crypto entrepreneurs, FTX raised 400 million USD at a 32 billion USD value in January. According to PitchBook, a record 26.7 billion USD was invested in blockchain startups last year due to industry enthusiasm, the majority of which came in the first quarter. In comparison to 2021, that figure reflected a modest increase.
Investors are focusing on due diligence
Recently the news broke out that the investors of FTX are being probed by the U.S. authorities. They are not accused of any wrongdoing but their due diligence and company policies will be questioned to make sure they didn’t misuse customers’ money. Neither FTX nor its arm firm Alameda research did follow any such diligence or policies.
“I don’t know how price-disciplined they were, it will be better for other crypto investors because now you can go back to the correct valuations and the correct due diligence process,”
said Robert Le.
Also read: Former Barclays Chief Is Optimistic About Crypto’s Future, Here’s Why
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