Cryptocurrencies 2022 with macroeconomic problems
Flow of venture capital into the sector continues unabated
Not necessarily related to possible crypto rally
Crypto buyers had to pay 69,000 US dollars for a bitcoin in November last year. In the meantime, it has become significantly cheaper to invest in the veteran of cybercurrencies: With prices temporarily below USD 20,000, BTC has reached a new 18-month low in 2022.
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However, the crisis in the crypto market goes far beyond a bitcoin weakness. Almost all cryptocurrencies have been sold off heavily in the past few months, and the value of the overall market has plummeted.
Numerous stressors
There are numerous factors that weigh on the mood on the crypto market and cause investors to part with their investments. The fundamentally more pessimistic stock market mood has also affected Bitcoin & Co. – the correlation in particular to US tech stocks, which have lost disproportionately over the course of the year, has increased.
In addition, the structure of investors in the market has changed. While previous market rallies have tended to be driven by retail investors who have fueled strong cryptocurrency performance out of fear of missing out on an opportunity, the most recent rally in the crypto sector was fueled in particular by the entry of institutional investors. It is precisely these who are now ensuring that the pressure to sell increases, because by selling liquid assets they are responding to the increasingly difficult times on the market, which are being determined by high inflation rates, the interest rate hike by the central banks and the fear of a recession.
This unfavorable situation was further reinforced by the collapse of the stablecoin blockchain project Terra (LUNA), which proved to be less crisis-resistant and wiped out investor wealth across the board. The cryptolending service Celsius then went into a tailspin and announced that it wanted to pause all payouts, swaps and transfers between accounts due to “extreme market conditions”. A competitor, Babel, followed suit just a few days later.
Venture capital continues to flow into the market
However, crypto startups seem to only feel the pessimistic market sentiment marginally, as venture capitalists continue to invest money in the market undeterred. The Silicon Valley investor Andreessen Horowitz, for example, launched a 4.5 billion dollar fund for the Web3 topic.
In Germany, the Berlin FinTech F5 Crypto has launched an open crypto fund for institutional investors.
Crypto risk management startup Cloudwall Capital raised $6.3 million in investor funds earlier in June.
In addition, brokerage startup FalconX has more than doubled its valuation to $8 billion in a year after raising $150 million in a Series D funding round.
Crypto exchange Huobi Global, meanwhile, has launched a new $1 billion mutual fund called Ivy Blocks focused on Decentralized Financial Services (DeFi) and Web3. The funds are to be made available for “investments in promising blockchain projects”.
Venture capitalist with a different focus
The fact that venture capital continues to flow into the crypto market on a large scale can be explained in particular by the fact that venture capitalists do not explicitly invest in crypto currencies but rather in Web3 projects. Their focus is on blockchain technology and the associated application possibilities – crypto is only one of many application options in this context.
Investors in this segment are forced to think long-term and to identify possible trends early on and support them with funds – regardless of the current mood on the market. Jenny Zheng, Business Development Lead for Bybit NFT Marketplace and co-founder of Blockcast Ventures, sees VC investors gaining ground even in weak market phases. It invests more in a down market to grow in an up market. “If it goes up it’s like 100 times, if it goes down it could go down 99% so the entry point is much more important compared to traditional finance,” the expert is quoted as saying by Cryptomonday. “The key is to follow the new trends and get involved at an early stage. Venture capital also follows the trends. Defi, Gamefi and NFT are the top choices and they will remain for many years to come,” Zheng continued.
Signs of imminent crypto market recovery?
However, the fact that risk capital continues to flow into the market even during disappointing market cycles such as the one currently prevailing should not unreservedly lead to the expectation that the market for cryptocurrencies will start a significant recovery in the foreseeable future. Because the coming months will have to show whether the crypto projects, which have now been able to equip themselves with capital, will be successful – despite the unfavorable macroeconomic situation. If new, promising applications appear on the market, this can lead to a pull that also gives the ailing cryptocurrency sector new impetus. However, it is also possible that cryptocurrencies as an application will continue to be viewed with skepticism while Web3 is becoming increasingly emancipated.
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