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Morgan Stanley predicts a big crypto VC drop

Lucinda Shen
May 31, 2022
Illustration of pixelated coins in the shape of an arrow pointing down.
Illustration: Allie Carl/Axios

Venture capital funding to crypto companies could drop by as much as 50% by the end of this year if the industry follows the rest of VC landscape, analysts from banking giant Morgan Stanley predicted in a morning note Tuesday.

Why it matters: You already know that crypto startup funding began to slow in recent months. Now the question is, how bad will it get?

Context: Last year, crypto startups raised over $25 billion in funding globally (about $30 billion by the bank's count), a new record by a long shot.

  • "We think that is all going to change — the number of VC crypto investment deals peaked in December 2021," a team of analysts led by Sheena Shah wrote.

Of note: Crypto-focused VCs have an enormous amount of dry powder on hand, leading some to believe crypto will be more cushioned from rate hikes and other macroeconomics shocks than the rest of VC land.

Yes, but: Morgan Stanley is expecting investors to prioritize their existing holdings over deploying capital to new companies, and anticipates an exit of tourist investors will blunt the usefulness of this dry powder as "insurance."

Yes, and: Many investors like to say they are contrarian, but few really are and Morgan Stanley says the flavor of the month within crypto keeps changing.

  • While 2020 investments focused on crypto infrastructure, mid-2021 gave rise to DeFi, while 2022 is emerging as the year of the NFT and gaming companies.
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