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Crypto Venture Funding Hits a 3-Year Low During FTX Trial Turmoil

Data from PitchBook revealed that venture capitalists are holding back with their investments amidst the FTX trial turmoil.

FTX trial puts downward pressure on crypto funding.
Creator: gopixa | Credit: Shutterstock Copyright: Copyright (c) 2017 gopixa/Shutterstock.

In the midst of the ongoing criminal trial of FTX co-founder Sam Bankman-Fried, venture capitalists have retreated significantly from the crypto industry, marking a sharp decline in global venture funding for crypto startups.


Funding Decline


Recent data from research firm PitchBook reveals that venture funding in the crypto sector during the third quarter plummeted by 63% compared to the same period in the previous year. A mere $2 billion was invested globally in crypto during the quarter, representing a fraction of the capital previously injected into the industry.


The decrease in funding can be attributed to several factors, with one key factor being the reduction in the size of deals. PitchBook analyst Robert Le points out that the absence of substantial investment deals has been a primary driver behind this decline. In contrast to the heady days of the crypto bull market, the current environment is prompting venture capitalists to take a more cautious approach.


What does the FTX trial have with it?


Notably, mega fundraises that characterized the crypto boom once benefited prominent companies like FTX, OpenSea, and Yuga Labs. However, the VC pullback has left many late-stage tech investors exiting the space altogether. This shift in investor sentiment is causing concern for crypto startups, which may now face challenging decisions, including cost-cutting measures and layoffs if they are unable to secure funding.


The repercussions of the FTX scandal have further complicated matters for crypto startups. Previously, venture capitalists, including renowned firms like Sequoia Capital, invested substantially in FTX and its trading arm, Alameda Research. Both entities were active investors before their executives faced criminal fraud charges. Consequently, their portfolio companies, which included Circle, Paxos, Aptos Labs, and Anchorage Digital, are now left in a state of uncertainty.


FTX and Alameda’s startup holdings have emerged as valuable assets during their bankruptcy proceedings. However, the potential liquidation sale of these stakes could further undermine the valuations of crypto startups if sold at discounted prices. As Robert Le cautioned, "Because FTX and Alameda have such a huge portfolio, it could further depress valuations in this space."


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