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Crypto gloom deepens on JPMorgan team’s venture capital warning

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A retrenchment in venture capital funding for the digital-asset sector is the latest sign that a longer slump in crypto markets may lie ahead.

That’s the view of JPMorgan Chase & Co. strategists including Nikolaos Panigirtzoglou, who said Thursday such funding is running at the equivalent of about $10 billion a year, less than a third of the pace seen in 2021.

“This is a concerning development as it shows reluctance by VC funds to deploy capital into the digital-asset space, increasing the likelihood that the current weakness in crypto markets would be long lasting,” the team wrote in a note.

Venture capital investment into the industry hit a more than one-year low of $4.4 billion in the third quarter. The crypto sector has wilted under tightening monetary policy, which has hurt liquidity and thus demand for riskier assets.

The JPMorgan team said weak crypto venture funding in September and October imply a drop-off in July and August wasn’t purely seasonal as had been hoped.

An index of top digital assets has slumped 57% this year. Bitcoin has been mired in a trading range around $20,000 since sinking to a low in June. The largest token was little changed around $20,320 as of 11:35 a.m. in Singapore.

Alternative coins, like meme token Dogecoin, showed some life of late but that stalled Friday. Dogecoin sank as much as 10.3%, partially unwinding a speculative rally driven by the view that supporter Elon Musk might integrate the token into Twitter somehow after acquiring the social-media enterprise.

Major crypto exchange Coinbase Global Inc. said Thursday it doesn’t expect the industry to rebound swiftly from a trading slump that’s battering revenues. The firm’s Chief Financial Officer Alesia Haas said in an interview “headwinds could persist or possibly intensify.”

Global markets remain vexed by the prospect of a higher end-point in the Federal Reserve’s interest-rate hiking cycle to fight inflation. The latest bear-market rally in stocks is fizzling and a US Treasury yield curve inversion is at levels unseen since the early 1980s, pointing to a recession ahead.

Such a backdrop suggests the possibility of a tough period for riskier investments like crypto too in the weeks ahead.

© 2022 Bloomberg

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