VC investments in crypto have plummeted by 90% compared to the previous year. Regulatory pressures and significant declines in AUM from key VC firms are contributing to this funding crisis. Maarten Bloemers, co-founder of GET Protocol, advocates a return to the spirit of cryptocurrencies.
The cryptocurrency industry is facing a stark reality. Raising capital is increasingly becoming an uphill battle. Venture capital investments in cryptocurrency-related projects are declining significantly.
As highlighted in a recent report, just eight crypto-focused VC funds had raised a combined $500 million globally as of May 16, 2023.
Decreased Funding from Venture Capitalists
This marks a 90% drop in funds to receive financial support compared to the previous year. So what is causing this crisis in crypto funding and how is it reshaping the industry?
Maarten Bloemers, co-founder of GET Protocol, provides a candid perspective on the declining number of venture capitalists investing in crypto and blockchain startups. Bloemers said that “Venture capitalists are currently busy with the challenge of maintaining their existing portfolio companies, which leaves them with limited capital to allocate to new investments.”
Bloemers’ ideas point to a puzzling situation. Due to the current adoption curve, VCs may find it difficult to find limited partners for new Web 3.0 funds, which could stifle growth opportunities for the crypto industry in expanding adoption.
Multicoin AUM Plummeted to $8.7 Billion
Over the past year, the assets under management (AUM) of several crypto venture capital firms have experienced significant declines. For example, Multicoin’s AUM plummeted from an initial figure of about $8.9 billion to a much lower $1.4 billion by the end of 2022.
Similarly, Paradigm saw its AUM decline from $13 billion to an estimated $8.7 billion over the same time period, according to Newcomer data.
While AUM may not be the definitive metric for evaluating a company’s prosperity and can fluctuate due to factors unrelated to fund performance, it is still a valuable indicator of financial health.
The ripple effects of these developments are widespread. Following the spectacular collapse of centralized exchanges like FTX and subsequent banking crises, regulators have redoubled their scrutiny of the crypto industry.
The Role of Artificial Intelligence
In addition to regulatory tightening, a notable shift in VC attention from cryptocurrencies to artificial intelligence (AI) is evident.
Fortune reported a significant increase in median valuation before money for generative AI companies. This valuation has ballooned to $90 million as of the current year, based on the nine transactions PitchBook has recorded through March 29. This marks a substantial increase from the $42.5 million figure recorded for 2022.
In addition, early-stage AI startups that focus on various applications, including software development, customer experience enhancement, and media creation, are also receiving high ratings.
Bloemers reframes this trend more as a liability of the crypto industry than a betrayal by venture capitalists. He dismisses the idea of crypto projects integrating AI components simply to attract investors. Instead, it encourages construction “because it adds value to a large enough market.”
As Bloemers succinctly sums it up, navigating the crypto market, especially in these times, is “a marathon, not a sprint.” In such a marathon, a return to the roots and spirit of cryptocurrency could prove to be the most potent form of resistance: Build not for speculative hype but for substantial, transformative value.
By Audy Castaneda
