Investments in crypto, from Wall Street VCs to deep-pocket investors, highlight flaws in risky financial strategies that fuelled the crypto boon
Investments from venture capital funded more than half of all U.S. public companies in 1979, representing a third of all stock market value. All the top five most valuable companies in the U.S. (Apple, Microsoft, Google, Amazon and Facebook) began as VC-backed start-ups.
The rise of blockchain technology has changed the way investors could think about venture capital funds. VCs are increasingly diversifying their funds into the cryptocurrency space.
They are thinking about how to fundamentally change their fund structure so that it is centralized and allows for a more inclusive environment for many investors to play in the space.
VCs ລົງທຶນ $14.2 billion into crypto across 725 deals in the first half of 2022, according to KPMG’s Sept. report. While that number might sound a lot, the graph below narrates a different story.
ແຕ່ມີຫຼາຍກວ່ານັ້ນ.
In the third quarter, venture capital investment in the crypto industry sank to its lowest level in more than a year. According to Bloomberg, VC firms ລົງທຶນ $4.44 billion in crypto start-ups in the quarter, a 37% decline from the same period in 2021.
Given the rise in hacks to collapses within these investor-backed crypto platforms, this doesn’t come as a total surprise.
Investments Begin to Dry Up
This year has been a challenging one for the cryptocurrency sector. Price corrections, volatility, and regulatory hiccups, among other factors, contributed to the fall. This niche market saw a sharper downturn due to the high risk associated with the asset class and plunging cryptocurrency prices.
Such adverse conditions led to the collapse of multi-million dollar ບໍລິສັດ crypto/platforms. Two notable names come into the picture: Terra’s billion-dollar crash and the ongoing FTX collapse. Both of the incidents saw crypto companies (and their supporters) toppling like dominoes.
Many even compare these falls to the 2008 financial crisis and the Lehman Brothers collapse. Nevertheless, such situations left some of the space’s so-called “smart money” investors holding the bag.
Top VCs and other investors backed and publicly endorsed platforms such as Terra and FTX before they imploded. Nonetheless, collapses have left an unsightly mark on the portfolios of some of crypto’s most respected venture capital firms and investors.
Terra and Fellow Lunatic LUNA ຜູ້ສະຫນັບສະຫນູນ
The Terra network and its leader, Do Kwon, rose to fame over a few years in the crypto world. Luna emerged as a bright spot in the markets and reached its peak valuation, standing over $116. In April, Luna was worth more than $40 billion.
But that wasn’t the only factor at play here. The Terra dollar-pegged UST stablecoin even assured investors of 20% yearly returns, or annual percentage yields (APY), via the lending program, Anchor.
A massive luring factor. Did it work? Well, not only individual or retail investors jumped on board, but they even captured the attention of some of the brightest minds in the space at top venture capital firms.
There were several red flags over using Anchor, calling it unsustainable, which came into existence in Jan.
Some said it looked like a blatant ໂຄງການ Ponzi, where money from later investors was paid to earlier investors as “interest.” Nevertheless, lead investors and big corporations used Anchor to squeeze good APYs.
For instance, Jump Crypto, and Three Arrows Capital bought into Luna; Coinbase Ventures, Lightspeed Venture Partners, Galaxy Digital, and Pantera Capital backed Terraform Labs.
Galaxy chief Mike Novogratz was an outspoken Terra advocate, going so far as to get a tattoo ຮູບແບບ LUNA earlier this year as the token touched $100. “I’m officially a Lunatic.” he tweeted alongside a photo of his new ink.
Source: https://beincrypto.com/wall-street-venture-capitalist-are-as-smart-as-crypto-newbies/