Venture funding for crypto hits lows last seen in 2020 due to SBF trial fallout News โธ Investments
Venture funding for crypto hits lows last seen in 2020 due to SBF trial fallout
A mere $2 billion was poured into the sector, contrasting sharply with the enthusiasm seen in previous industry peaks, based on data provided by PitchBook.
2 min read
Updated: Oct. 9, 2023 at 3:16 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Global venture capital (VC) investments in the cryptocurrency sector are down 63% during the third quarter, marking the lowest level of funding since 2020, Bloomberg News reported, citing PitchBook research.
A mere $2 billion was poured into the sector, contrasting sharply with the enthusiasm seen in previous industry peaks, based on data provided by PitchBook.
VC Retreat from Crypto Investments
The decline coincides with the ongoing legal tumult involving FTX co-founder Sam Bankman-Fried (SBF) and his alleged mismanagement of the cryptocurrency exchange, which received hundreds of millions in venture funding.
Once the driving force behind the meteoric rise of the crypto industry, venture capitalists are now retreating in the face of increasing scrutiny due to their association with the beleaguered FTX platform.
Robert Le, a seasoned analyst at PitchBook, said:
โWe arenโt seeing the big deals anymore. Thatโs one of the drivers of the decline โ deals are smaller.โ
Le further delved into the predicaments now facing companies that once thrived during the crypto bull market, such as FTX, OpenSea, and Yuga Labs.
With VCs stepping back, these companies might have no choice but to cut costs, lay off employees, or, in dire circumstances, face acquisition at slashed valuations.
He added:
โIf theyโre not able to raise a round, even a down round, theyโre either going to go out of business or get acquired at a valuation thatโs much, much lower.โ
While early-stage crypto companies still see some investment deals, many established tech investors have vacated the scene entirely. Adding complexity to the situation is the continued ripple effects of the FTX scandal.
FTX fallout on VCs
Prominent VCs, such as the renowned Sequoia Capital, once backed FTX with relatively substantial investments, which it had to write off when the exchange went under.
FTX and its trading division, Alameda Research, were prolific investors in their own right before legal challenges clouded their horizons. Their vast investment portfolio boasted industry heavyweights like Circle, Paxos, Aptos Labs, and Anchorage Digital.
As FTX and Alameda navigate bankruptcy proceedings, their equity stakes in various startups have become crucial lifelines. The buzz surrounding a prospective funding round for AI startup Anthropic, an FTX investment, offers a silver lining for FTX’s creditors, holding out the promise of recouping losses through potential equity sales.
However, the U.S. Department of Justice (DOJ) is opposing SBF’s attempt to present the current value of investments, like AI startup Anthropic, in court. Prosecutors argue this is irrelevant and could mislead the jury.
Meanwhile, the prospect of a broad liquidation sale looms large, which, if executed hastily, could further drive down the valuations of crypto startups. Le accentuated this concern, stating:
โBecause FTX and Alameda have such a huge portfolio, it could further depress valuations in this space.โ
The global crypto investment community now waits with bated breath, keeping a keen eye on developments surrounding the FTX saga and its possible ramifications on the sector’s future.
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Posted In: Analysis, Investments
Author 
Assad Jafri
AJ, a passionate journalist since Yemen's 2011 Arab Spring, has honed his skills worldwide for over a decade. Specializing in financial journalism, he now focuses on crypto reporting.
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FTX
FTX is a defunct cryptocurrency exchange, currently in bankruptcy proceedings, that was founded by Sam Bankman-Fried and Zixiao “Gary” Wang in May 2019.
Alameda Research
Alameda Research was once a principal trading firm, operating as an arm of the failed crypto exchange, FTX.
Circle
Circle Internet Financial Ltd is a global internet finance company, built on blockchain technology and powered by crypto assets.
OpenSea
OpenSea is a decentralized peer-to-peer marketplace for buying, selling, and trading NFTs.
Yuga Labs
Yuga Labs is one of the savviest marketers of NFT brands, including Bored Ape Yacht Club, aย collection of 10,000 Bored Ape NFTsโunique digital collectibles living on the Ethereum blockchain.