Crypto Still Under Hangover from Excessive VC Funding During the Last Bull Market

Tushar Jain, a Multicoin Capital managing partner, says the crypto venture capital sector has yet to recover from the post-pandemic market downturn.

After the VC funding glut in 2021/2022, token prices have significantly declined, spreading losses for investors across the market.Despite the gloomy outlook, Jain remains confident that crypto will live through the challenges based on its core principles.

Crypto VC Market Still Suffers Post-Pandemic Downturn Effects

Tushar Jain, a managing partner at VC firm Multicoin Capital, recently discussed the outlook of the crypto venture capital market. During a discussion with Fortune correspondence Leo Schwartz at Messari's annual conference, Jain said the sector has not fully adjusted to the realities of the previous market downturn.

Jain revealed that investors invested heavily in the venture asset class during the bull market in 2021 and early 2022.

Reports show that 2021 was the greenest year for the crypto venture capital sector, with investors pumping over $33 billion into startups. This valuation accounted for 5% of the VC funding across all sectors worldwide.

At the peak of the pandemic bull run, many crypto firms, including bankrupt lender BlockFi and NFT marketplace OpenSea, attained over $1 billion in valuation.

However, due to the 2022 downturn, most of these valuations were deflated, and many assets plummeted in value, leading to massive losses.

Many people have yet to recover from this loss. This has led to a decline in crypto VC funding. According to reports, the crypto and blockchain sector recorded $1.975 billion in funding in Q3 2023, marking the lowest since 2020.

Jain confirmed this, saying, We are not seeing that many down rounds."

Private firms often raise funds at a lower valuation. However, according to Jain, this situation is not peculiar to crypto alone; it cuts across the broader venture capital industry.

The Multicoin executive also blamed the downturn on unfulfilled crypto promises. Many crypto tokens launch with promises of huge gains only to crumble within a short while, and some asset prices have remained stagnant, which also repels investors.

Further, Jain noted that political uncertainties have contributed to the gloomy outlook in the venture capital sector.

Jain said: There's so much hype, so much excitement. At the same time, we've seen a stagnation of prices; major token launches over the past year have plunged in value for many of them, and as I said, there's this uncertainty around what the political situations look like right now."

Crypto Will Survive the Tough Times

Despite the uncertainties and market downturn, Jain has yet to lose faith in crypto. He believes that, like the previous cycles, the industry will survive the present challenges. Jain is confident in the core principles of cryptocurrency and its future potential.

He said, still fundamentally believe in the core principles that underline the industry, and we've been through these cycles before."

And just as investor sentiment follows prices, VC funding will pick up come the next bull market.

Jain also noted that Multicoin has made bad investment decisions in the past, and he believes mistakes are unavoidable. One view I have is if your venture fund doesn't have any zeros, then you're not taking enough risk."

Multicoin Capital raised $430 million in its Venture Fund III in 2022. According to Jain, the company is still deploying this fund and plans to raise more funds.

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