Morgan Stanley Explains Record Crypto Venture Capital Investments
In a report published on Tuesday, Morgan Stanley said that in 2021, peaking in December, crypto companies raised a record $30 billion of venture capital (VC).
Despite the latest downturn in cryptocurrency markets, the number of deals in the VC sector remains high.
Nevertheless, the report adds that this is likely to drop, mirroring trends in other VC categories with a 50% slide possible by the end of 2022.
The bank notes:
“Activity across eight of the most important VC bellwether markets over the past 12 months has reset 50% from peak; worsening performance of some of the largest tech/crypto investors who are prioritizing existing holdings over deploying further dry powder, and the exit of ‘tourist capital’ as both token and equity investments become more challenging during a crypto bear market – a similar pattern seen during 2018/19.”
U.S. dollar liquidity and rising crypto prices led to record VC investment in the crypto space last year, accounting for over than 1,800 deals, JPMorgan said, representing an increase of 160% from the previous years’ average. On a global scale, crypto investments represented 7% of all VC activity.
Morgan Stanley outlines that at the start of 2020 most activity was centered around crypto infrastructure and financial services. By late 2020 to mid-2021 decentralized finance (DeFi) applications were the preferred investment and from the end of 2021 into 2022 non-fungible-tokens (NFTs) and gaming firms received the most attention.
In a previous note, the bank warned that NFTs and digital land have been subject to mostly speculation with a risk of becoming the next bubble to burst.
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Source: igaming
