Crypto venture capital dries up after FTX turmoil

The flow of cash into crypto start-ups fell to $2.5bn in the final three months of 2022 – down 75 per cent on the previous quarter, according to research from investment research firm Pitchbook

Investment into crypto currency startups collapsed at the end of last year as the market crumbled due to the implosion of crypto exchange FTX and a series of high-profile bankruptcies, according to a new research.

The flow of cash into crypto start-ups dropped to $2.5 billion in the last three months of last year – down 75 per cent compared to the previous quarter, as per a research from investment research firm Pitchbook.

The figures demonstrate the level of the slump in confidence in the sector as Venture Capital (VC) firms invested $11 billion into crypto in the first three months of 2022 at the peak of the frenzy.

Pitchbook analysts said that investors had been shaken by the still unproven ‘practical benefits of crypto’ along with economic turmoil and uncertainty around the regulation of the sector.

The collapse of a number of crypto firms in 2022 is a reminder that considerable challenges still exist in the space. Mainstream crypto adoption is not likely to take place until there are better regulations and guidelines, according to Robert Le Senior Analyst, Emerging Technology at Pitchbook. The lack of clear regulation is a major concern for the industry and is seen as a limiting factor.

Regulators across the world have taken steps towards drawing up rules for the sector over the past six months, with the European Union introducing comprehensive legislative plans in the Markets in Crypto-Assets (MiCA) proposal.

The UK’s Treasury is also set to grant fresh powers to regulators in the country to permit them to draw up specific rules to crackdown on crypto companies.

Pitchbook said that 2023 could now represent a ‘policy inflection point’ in the sector and guide the attitude of investors toward the crypto sector over the longer term.

We expect financial regulators and central banks across the world to expand their focus to crypto assets and to speed-up their work in writing new rules to help prevent an FTX-type collapse in the future, Le further said.