- The VC crypto investments peaked in December 2021 but risk being cut by half by the end of this year 2022 warns Morgan Stanley.
- The global macroeconomic conditions show that the time of easy money is over which could impact crypto investments.
During last year’s crypto bull market of 2021, there was a record inflow of funds into the market. Venture Capital giants were pouring huge amounts of investment in several crypto projects working in blockchain-based gaming, Web 3.0, and much more.
However, Wall Street banking giant Morgan Stanley believes that the industry is set for a radical change. In its latest statement, Morgan Stanley said that venture capital investments in crypto can reduce their investment by half by the end of 2022.
As per Morgan Stanley, crypto startups raised a record $30 billion from venture capital firms last year. But the bank also states that mirroring broader market trends in venture capital, the VC investments in crypto will further dry down for the rest of the year. Morgan Stanley has been itself an investor in several blockchain startups. Furthermore, last year the banking giant also deployed a big crypto research team.
However, in a recent report, Morgan Stanley strategists led by Sheena Shah said that the time of easy money is over. In the report, the strategists added:
We think that is all going to change — the number of VC crypto investment deal peaked in December 2021, and if it matches prior performance of other sectors, could fall as much as 50% into the end of the year.
A few promising crypto startups from the DeFi and Web 3 space have continued to attract good investments. some of the top VC firms like Andreessen Horowitz (a16z) have also participated in crypto funding this year.
The gloomy picture for global macros
The global macro setup and the geopolitical tensions have put severe pressure on risk-ON assets such as equities and crypto. There’s a prediction that we could be now into a long bear market that could extend to 2023 and beyond.
The VC activity across some of the most prominent markets has also dropped by 50 percent in the last 12 months. The Morgan Stanley report further added that “worsening performance of some of the largest tech and crypto investors which are prioritizing existing holdings” could decline as “Both token and equity investments become more challenging during a crypto bear market – a similar pattern seen during 2018/19″.
However, the crypto market continues to grow in size from one bear market to another. For e.g. in 2018/2019, the size of the crypto market was just 20 percent of what it is today, despite the market correction.
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The strategists at Morgan Stanley based their predictions on what is happening in the broader market. Amid the current macro scenario, the U.S. equities have entered a steep correction. Most of the growth stocks last year on Wall Street have taken a severe beating. This is “evidence that growth at all costs is no longer being rewarded,” they concluded.