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Crypto Bros Have Run Out of Money

Venture capital financing in May reached its lowest point since January this year, and it seems the high-risk, high-reward bet on crypto tokens has landed VCs in a tight spot.

Photo by Towfiqu barbhuiya / Unsplash

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Well, well…You could practically hear the champagne corks popping and the Lambos revving up in 2021 when VC darlings Tiger Global, got their paws on the glittering world of crypto. You might recall their big bet on Braintrust, the crypto-recruitment platform, gobbling up not company shares but millions of digital tokens. Quite the swanky move, right?

But here we are in 2023, and the party seems to have fizzled out quicker than a cheap sparkler. As the great Forbes reported last week, the token market isn't feeling too perky. The all-too-familiar bear has made its entrance, leaving the crypto VCs to face the cold, harsh reality.

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Let's hit the rewind button for a bit. Tiger's tokens, or BTRST for those in the know, were the new golden tickets. They were sold to investors with multi-year lock-up periods, a move that would seemingly prevent the price from plummeting. But boy, did the price plummet. Forbes noted Tiger's wallets have been unloading Braintrust tokens since January, pushing prices down over 20%.

What's more, the volatility of these tokens isn't doing any favors for the venture investors. Unlike in private companies where a dip in valuation can be discreetly swept under the rug, these token-based projects are practically naked in front of the world. As Braintrust's co-founder, Adam Jackson, eloquently put it, "Token projects have to eat that shit every day."

Oh, how the mighty have fallen. It seems the high-risk, high-reward bet on crypto tokens has landed VCs in a tight spot. Funds are struggling to hide the real-time performance of their token holdings, and quite frankly, it's not a pretty sight.

Look at Multicoin, for example, who saw its assets under management (AUM) fall from a whopping $8.9 billion at the start of last year to a measly $1.4 billion by the end of 2022. Yes, it's not the perfect measure of success, but it sure tells a pretty grim tale.

As the industry reckons with this new reality, some in the crypto world seem to be in denial, like Gupta from Delta Blockchain Fund. Despite her fund's value dropping from a 600% gain to just 18%, she appears unfazed. After all, as she says, "there's going to be a bull market again." If that isn't the crypto bro's version of "it's just a flesh wound," I don't know what is.

Yet the reality is stark. Cryptocurrency investments have hit a dry spell in 2023, with fundraising numbers vanishing faster than a blockchain transaction during peak congestion.

This downturn comes amid broader economic slowdown and increasing regulatory scrutiny of the industry. Just $500 million raised so far, a staggering 98% drop from 2022. It seems the well of infinite crypto wealth may have run dry.

According to a comprehensive report by RootData, the total number of publicly announced investment projects in May 2023 was 93, representing a 13% decrease from the previous month's 107 projects and a staggering 40% decrease from May 2022, which saw 155 projects. Although these numbers might adjust due to delayed announcements, the overall trend shows a marked decline.

The market segments in which these investments occurred varied. Infrastructure projects took the lion's share with 29%, followed by NFT/GameFi at 26%, DeFi at 18%, and CeFi at 6%. This diverse distribution underlines the broad impact of the downturn across the sector.

And it's not just the crypto bros who are feeling the pinch. As Forbes notes, the interest in crypto among family offices is on a steep decline. Only 12% expressed potential future interest in investing in crypto, compared to a respectable 45% in 2021.

But, ever the stubborn optimists, many in the crypto VC space are standing by their strategies, bravely (or foolishly, you decide) staring down the face of this bear market. Maybe they don't really have a choice, or maybe they're just not ready to let go of the dream. Either way, it's going to be a bumpy ride.

So, crypto bros, better buckle up. And next time, try not to put all your tokens in one basket.