The crypto market went bloody red this year, from the two largest cryptocurrencies by market cap: Bitcoin and Ether fell more than 70% from the November 2021 highs to the Terra-Luna collapse. The series of unfortunate events in crypto that started from the very beginning of 2022 has only worsened over time.
With credit giants like Celsius suspending withdrawals and filing for bankruptcy, along with crypto hedge fund Three Arrows Capital’s (3AC) crisis, it’s clear that venture capital (VC) firms are surprised by crypto investments.
According to the latest Crunch base reportVC investments in crypto companies fell to just $9.3 billion in the first six months of 2022, from $12.5 billion in the first half of last year. This in turn speculates a possible downturn in crypto/blockchain investments, reflecting the broader tech markets.
VCs Practice ‘Once Burned Twice Shy’ After Terra-Luna Collapse
VCs preserving crypto investments are not surprising given that the industry giants suffered significant losses following the terra-luna fiasco earlier this year.
Luna losses from Galaxy Digital
Crypto trading bank, Galaxy Digital, was one of the biggest institutions to be part of the Terra-Luna controversy after the company’s CEO Mike Novogratz stepped in and revealed their Luna investments after the crash.
Novogratz shared a post via Twitter revealing how Galaxy’s “lead investment team invested in Luna with balance sheet capital in Q4 2020”, adding that the “initial premise for investing in Luna was centered around expanding native blockchain payment systems.” Nevertheless, the CEO of Galaxy noted that despite the flash crash, the company stabilized thanks to a diversified portfolio that weighed the possibilities of a black swan event like this.
Hashed was thrown out after Luna crashed
South Korea was the hardest hit region after the collapse of Terra-Luna and Hashed, the country’s fledgling VC, secured a spot among the financially knocked-down VCs worldwide. According to CoinMarketCap data from April, the Hasshed wallet lost more than $3.5 billion in the Black Swan event. In addition, according to a local news channel, “about 200,000 investors in South Korea are believed to have invested in TerraUSD and Luna,” which is the highest number of investors in a region that suffered the terra-luna tumble.
In addition, industry sources reported the publication that South Korea’s regulatory watchdogs, including the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), have sought local operators of cryptocurrency exchanges to “share information about transactions that are pegged to TerraUSD and Luna, including the volumes of their trading, their closing prices and the number of relevant investors”.
Regulations authorities around the world joined the crypto industry, especially algorithmic stablecoins after the terra-luna event. The director of the International Monetary Fund (IMF) Kristalina Georgieva even argued that investing in stablecoins that are not backed by real-world assets is like investing in a pyramid scheme.
The IMF official said “the less there is to back it up, the more willing you should be to risk this thing exploding in your face”. She added: “It is [crypto] offers us all faster service, much lower costs and greater inclusion, but only if we separate apples from oranges and bananas.”