Investment bank Morgan Stanley (MS) forecasts that venture capital funding in the cryptocurrency sector will slow this year after crypto firms raised a record $30 billion U.S. in 2021.
In a new report, Morgan Stanley noted that the number of venture capital deals in the cryptocurrency sector remains elevated despite the recent fall in prices for digital coins and tokens. However, the investment bank said that deal activity is likely to drop in coming months, mirroring trends in other venture capital categories.
The number of venture capital cryptocurrency investments peaked last December. If the cryptocurrency industry matches other sectors, the number of funding deals could slide as much as 50% by the end of this year, according to the investment bank.
A slowdown is expected as “activity across eight of the most important VC bellwether markets over the past 12 months has reset 50% from peak,” wrote Morgan Stanley in its report.
Venture capital is a form of private equity investing where financing is given to start-up companies and small businesses with high growth potential.
Morgan Stanley noted that, at the beginning of 2020, most investment was in cryptocurrency infrastructure and financial services. In late 2020 to mid-2021, decentralized finance (DeFi) applications were favored by venture capital firms. And from the end of 2021 until now, non-fungible-tokens (NFTs) and gaming companies have attracted the most venture capital investments.
U.S. dollar liquidity and rising cryptocurrency prices helped to fuel record venture capital investment in the cryptocurrency sector in 2021, with more than 1,800 deals completed. That was an increase of 160% above the average of the previous five years. Investments in cryptocurrency companies represented 7% of all venture capital globally.
