Bloomberg News reports that the recent crises of the crypto market are causing some major soul-searching among venture capitalists who have put billions of dollars into the digital asset industry in the last two years. The venture capitalists form a major constituency.
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There were startups that the investors had backed but have struggled miserably amidst the downturn in the market. Layoffs have been witnessed in some major blockchain platforms like Gemini Trust Co., Crypto.com, and Coinbase Global Inc. BlockFi Inc is looking forward to lower valuations to raise capital. Platforms like Terra blockchain and Celsius crypto are in severe crisis.
By backing the startups, the venture capitalists paved the way for larger mainstream digital currency recognition. However, the prevailing crisis in the digital asset industry is gradually beginning to make investors feel that the whole industry is more hype than value.
Trial and Tribulations
The latest fiasco was due to what unfolded at Celsius Network Ltd., which announced on June 12th that it would be freezing transfers, swaps, and withdrawals as it would not be able to make payments to the customers as per the returns it promised.
The debacle at Celsius immediately followed the fiasco at TerraUSD algorithmic stable coin along with Lune, its sister token. However, it seems that the problems prevailing at Celsius have been infectious. Soon after the turbulence in this platform, Arrow Capital has seemingly gone into insolvency. This was followed by the freezing of withdrawals by another crypto lender, Babel Finance.
Bloomberg News reports that the miscalculations of risky, large, and leveraged entities like Celsius and Terra led to the major ripples across the crypto ecosystem, as per co-founder and managing partner of the crypto venture company Hack VC.
Trouble for Terra and Celsius has triggered prices of crypto to plunge further with Bitcoin dropping below $20,000 over the weekend to note a drop of more than 30% to date in this current month. As crypto drops into a bear market further, the industry’s startup’s white-hot valuations are being called into question, as per a partner at Millennia Capital, Joe Zhao.
Bloomberg News reports that the venture capitalists have injected as much as $54 billion into the crypto startups since the beginning of 2020, as per PitchBook. Companies like Alchemy and OpenSea have scored valuations worth multibillion dollars. But the startups’ main aim will now be to survive and stay afloat instead of trying to maintain the status of a unicorn, according to Zhao.
According to a partner at Dragonfly Capital, Tom Schmidt, he has been witness to failed deals, and investors pulling out of investment rounds. He states that during the bull market, it is pretty likely that the crypto startups had overhired.
