- In Q4 2022, Venture Capitalist (VC) participation in crypto dropped by 75% from the year before.
- VCs are a significant source of liquidity for the cryptocurrency industry.
- Despite the drop in VC participation, the crypto industry still remains strong.
Bloomberg reporter Hannah Miller has said there is a drop in the activities of Venture Capitalists, otherwise called VCs, in the crypto industry. She noted that most VCs withdrawing from the space are traditional investors rather than the crypto-focused VCs still heavily invested in the industry.
According to Miller, there is a sharp decline in VC participation in the crypto industry. She described the phenomenon as “a big plunge that shows a pretty dramatic shift.” As of Q4 2022, VC participation had experienced a year-to-day drop of about 75%.
VCs play a significant role in establishing the cryptocurrency industry. They have been the primary source of liquidity and have backed the development of several projects and products in the space. VC participation in crypto is in suitability with their disposition to risk. VCs favor high-risk ventures, knowing that most projects they support might fail. However, they capitalize on the few that break through to recover their investments.
Miller noted that the VC withdrawal from crypto exposed a divide among the categories of investors playing in the market. According to her, the older and generalist big-name investors who came into crypto are pulling out. Those set up primarily with the crypto agenda in mind remain and have continued to invest in the industry.
In Miller’s opinion, the plunge in VC investments into the crypto industry does not mean crypto is going away. Far from that, she thinks that the use cases for blockchain and the yet-to-be-realized potential of the technology are why many crypto-native VCs are still sticking around.
She also underlined the growing interest in newer startups as a motivation for the VCs. Many such VCs are betting on DeFi, and are keen on differentiating between centralized and decentralized exchanges. Such startups are resistant to hacks or other challenges similar to what FTX or other centralized platforms went through.
Miller recognized the FTX debacle as a setback to the crypto industry. However, she insists it does not define the industry. She noted reset has happened, especially in how VCs approach the industry. Nowadays, some VCs demand supervisory roles over startups by requesting to be on the board of the companies in which they invest.
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