VC investors facing the difficulties of proper research into cryptocurrency companies should go back to basics: “trust the chain”says an executive at a cryptocurrency-focused hedge fund.
Speaking to Cointelegraph, John Lo, head of digital assets at Recharge Capital — a $6 billion fund with cryptocurrency and decentralized finance (DeFi) projects in its portfolio — said FTX’s collapse has shaken “confidence in this industry.”.
“There will be a lot of soul-searching,” he said.. According to Lo, research has always been an issue in the risk space, even outside of cryptocurrency.
Said the action plan adopted by cryptocurrency venture capitalists in response to the FTX collapse will be a crucial make-or-break factor for an effective recovery or deepening of the industry crisis.
Nevertheless, Lo argues that the crypto industry provides the world with a step toward a solution—an immutable, public ledger—arguing:
“Cryptocurrency companies need to go back to the principles of cryptocurrency: trust the chain. We are going to see a lot more companies operating on-chain, and VCs relying on on-chain data to do further research.”
“We are going to see better tools to distill and track the data on-chain; in fact, we could even see entire on-chain businesses involved in NFTs. [tokens no fungibles] and to sell and streamline the arduous M&A processes,” he added.
Total funding raised in cryptocurrency venture capital last year surpassed that of 2021, with $30.3 billion secured by crypto projectsshows Cointelegraph Research’s venture capital database.
The last quarter of 2022 saw the lowest capital inflow in the industry in two years; only USD 2.8 billion allocated through 371 agreementsaccording to a January 1 tweet from Alex Thorn, head of research at Galaxy Digital.
Q4 2022 was the slowest for crypto vc investing in 2 years, with only $2.8bn allocated across 371 deals.
in total, 2022 saw $30.8bn invested by VCs, compared to $33bn in 2021.
likely crypto vc will be muted for several quarters w/ rates, macro, & cryptoasset price headwinds pic.twitter.com/RaVGNBWzVa
— Alex Thorn (@intangiblecoins) December 31, 2022
The fourth quarter of 2022 was the slowest for cryptocurrency investment in two years; only USD 2.8 billion was allocated to 371 operations.
In total, in 2022 venture capital firms invested USD 30.8 billion, compared to USD 33.0 billion in 2021.
Cryptocurrency investment is likely to remain muted for several quarters due to rates, macroeconomics and headwinds, but the decline in funding also reflects the macroeconomic scenario, Lo said..
“A high interest environment does not bode well for risk industries. Risk often lags, and we are likely to see downgrades,” Lo said. In his opinion, As 2023 progresses and the macroeconomic outlook stabilizes, the sector will also regain stability.
“It’s probably a good thing that bad actors and bad practices are shaken off sooner rather than later.”
As the year progresses, Lo predicted that the industry will see more capital deployments than inflows with an emphasis on on-chain products and services rather than tokens..
A number of challenges that arose during the bull market will likely also be in the spotlight.including user experience, wallets, user onboarding, and compliance.
“Key narratives are forming around blockchain scalability, liquid staking, real-world assets, decentralized exchanges, and platforms,” Lo stated..
“These optimizations after a frenetic period of experimentation will be key to growthand as always, there are teams working in stealth on innovative products yet to be seen,” he said, adding:
“Cryptocurrencies are alive and kicking.”
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