Morgan Stanley Predicts An Upcoming Slump In VC Investment In Crypto

Morgan Stanley forecast a drop in the number of deals that crypto-based firms are making with venture capitalists.

According to a report published Tuesday, crypto firms raised a record $30 billion of venture capital (VC) in the past year. However, Morgan Stanley believes that the level could drop by 50% by the end of the year.

The number of VC deals peaked in December 2021 when a number of firms including banking firms and notable brands stepped into the world of cryptocurrencies to capitalize on the booming market.

"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," said Morgan Stanley.

The note from Morgan Stanley stated that following the abundance of US Dollar liquidity, the crypto sector attracted more than 1,800 deals, representing an increase of 160% above the average of the previous years. Crypto investment represent 7% of all investments last year as well.

The banking firm has also had its share of involvement in the crypto industry as it was the first major bank to offer its wealth management clients access to bitcoin funds. The firm had seen huge demand from its clients for exposure to cryptocurrencies.