Morgan Stanley: crypto venture capital to halve before year ends

The time of “easy money” is over, Morgan Stanley suggested, predicting a 50% drop in crypto-related VC investments this year.

Morgan Stanley, one of the first major US banks to launch crypto funds, issued a report that suggests the industry could be past its venture capital investment peak. Before the year is through, crypto could see VC funds slashed by as much as 50% compared to 2021, when crypto companies raised approximately $30 billion, 7% of all VC investments that year.

The slump could be related to the wider VC market slowdown, but the “worsening performance of some of the largest tech/crypto investors” and the “exit of ‘tourist capital’” was also responsible, according to Morgan Stanley analysts.

Another source of trouble could be the fact that most VC investors in late 2021 and early 2022 put their money into NFT and crypto-related gaming projects. As the current bear market set in, both of these spaces started to see substantial outflows.

Sheena Shah, Morgan Stanley’s lead cryptocurrency researcher, joined this week’s Thoughts on the Market podcast to add more context to the bank’s predictions about crypto. The “elevated prices” the crypto market grew used to in 2020 and 2021 were “traded on speculation, with limited real user demand,” Shah said, suggesting that NFTs and digital land could also turn out to be overpriced.

“The downturn may continue if central banks persist in their policy of tightening,” Shah added, even as she admitted that many were already “looking for signs of a turnaround.”