Morgan Stanley says crypto venture capital could drop by half this year

The cryptocurrency market has witnessed a notable decline this year, lowering the amount of investment pouring into the sector. Strategists from Morgan Stanley now believe that crypto venture capital funding could drop by 50% by the end of the year.

Crypto venture capital could drop

Since the beginning of 2021, the cryptocurrency sector has attracted many venture capital firms. Morgan Stanley, a multinational management and financial services firm based in the US, has said that venture capital funding in the crypto sector could drop significantly by the end of the year.

A report published by the investment company on Tuesday said that in 2021, cryptocurrency startups will receive $30 billion in funding. This represented 7% of all the VC investments made globally. The team also said that cryptocurrency funding reached a record high in December during a massive bull run.

Despite the recent bearish sentiment across the market, cryptocurrency VC funding has increased significantly in 2022. Blockchain companies have continued to receive funding, and venture capital firms are still setting aside funds to support the sector.

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However, Morgan Stanley strategists have said that there could be a 50% drop in these investments before the end of the year. This drop could be witnessed if the crypto market suffers from the same recession experienced in other sectors.

The strategists also said that the performance of eight of the largest venture capital firms globally over the past year had dropped by half from the record high. They also added that a similar trend could be experienced in the cryptocurrency market, where VC funding could drop significantly.

“Activity across eight of the most important VC bellwether markets over the past 12 months has reset 50% from peak; worsening performance of some of the largest tech/crypto investors who are prioritizing existing holdings over deploying further dry powder, and the exit of “tourist capital” as both token and equity investments become more challenging during a crypto bear market – a similar pattern seen during 2018/19,” the report added.

VC funding pours into crypto gaming

Venture capital firms also seem to focus their attention on blockchain and crypto gaming platforms. Between 2020 and 2021, most VC funding went towards decentralized finance applications and crypto infrastructure. Morgan Stanley also said that since the end of 2021, VCs have been more interested in NFTs and gaming companies.

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