JPMorgan Says ‘True’ Crypto VC Funding Brings Downside Risks

Despite the recent resurgence of the cryptocurrency market, the relatively minimal flow of venture capital funds to the cryptocurrency industry this year presents downside risks, according to JPMorgan analysts.

“Our various proxies for cryptocurrency VC flows look somewhat muted compared to prior years YTD,” JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report Thursday. “We have previously argued that a recovery in crypto VC flows is a prerequisite for a sustained recovery in crypto markets. Therefore, in our view, depressed VC flows YTD could pose downside risks.”

Venture capital funding in the cryptocurrency sector has gained momentum so far this year, but continues to lag compared to previous years. The cryptocurrency industry has attracted $3.2 billion in VC investment so far this year, compared to more than $4 billion in the first four months of last year, according to Block Pro’s trading dashboard.

However, as the cryptocurrency market rebounds this year, more venture capital firms are raising or raising new funds. Earlier this month, 1kx raised $75 million to support early-stage cryptocurrency startups. Paradigm is reportedly discussing raising $750 million to $850 million for the new fund. Galaxy Digital, Hack VC, and Hivemind Capital are also reported to have raised $100 million, $100 million, and $50 million in new funding, respectively. Crypto Accelerator Alliance first closed its third fund in February, receiving $10 million each from Brevan Howard Digital and Galaxy Digital, and plans to raise another $80 million by July.

While VC money appears to be slowly recovering, cryptocurrency hedge funds have become more active this year, with assets under management rising sharply to about $20 billion over the past six months, JPMorgan analysts said.

Spot Ethereum ETF approved

JPMorgan analysts said: Thursday’s report said the odds of discovery were no higher than 50 percent. Ethereum ETH

-0.62%
The exchange-traded fund will receive approval in May, but will ultimately be approved by the U.S. Securities and Exchange Commission.

“Optimism about the approval of a spot Ethereum ETF by May 23 following the SEC’s investigation into the Ethereum Foundation also appears to be fading away from market prices, as seen in the discount to the Grayscale Ethereum Trust’s net asset value (NAV). There has been a 22% increase over the past month,” the analysts concluded.

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