
In the third quarter of 2020, global venture capital investments in the cryptocurrency sector were down 63%, marking the lowest level of funding since 2020, Bloomberg News reported.
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.
The decline follows the ongoing legal tumult surrounding FTX co-founder Sam Bankman-Fried and his alleged mismanagement of the cryptocurrency exchange, which received hundreds of millions in venture funding.
The rise of the crypto industry is now under fire from venture capitalists due to their ties with the FTX platform.
He further looked into the predicaments facing companies that once thrived during the crypto bull market, including FTX, OpenSea, and Yuga Labs.
With VCs stepping back, these companies may have no choice but to reduce costs, lay off employees, or face acquisition at slashed valuations.
While early-stage crypto startups still receive some investment opportunities, many established tech investors have quit the industry completely. The ongoing ripple effects of the FTX scandal are weighing heavily on the situation.
The most famous VCs, such as Sequoia Capital, once backed FTX with relatively substantial investments, which it had to write off when the exchange went under.
FTX and its trading arm, Alameda Research, were numerous investors in their own right before legal issues cloudsed their horizons. The investment portfolio encompassed industry icons like Circle, Paxos, Aptos Labs, and Anchorage Digital.
As FTX and Alameda navigate bankruptcy proceedings, their equity interests in various startups have become crucial lifeline milestones. The potential funding round for AI startup Anthropic, a FTX investment, provides a silver lining for FTX's creditors, holding out the promise of recouping losses through potential equity sales.
The U.S. Department of Justice, however, is holding down SBF's attempt to present the current value of investments, such as AI startup Anthropic, in court. Prosecutors argue that this is irrelevant and could mislead the jury.
The prospect of a broad liquidation sale looms large, which, if executed hastily, could further drive down the valuations of crypto startups. He accentuated this concern, stating:
The global crypto investment community is now bated, keeping an eye on developments surrounding the FTX saga and its possible ramifications on the sector's future.