Exit Strategy: Why Private Capital Is Fleeing Crypto


With the crypto market’s decline, investors, big and small, have been making various moves to ensure they are in the best position to weather the storm. For some, it is moving to more established cryptocurrencies or stablecoins for the cover they provide. For others, they have chosen to exit the market completely to avoid any further losses. Private capital looks to have chosen the latter as investments in crypto companies have been drying up.

Private Capital Wants Out Of Crypto

Crypto had been the winner of 2021 when it comes to investments. Billions of dollars from private capital poured into companies, both established and startups. The bull rallies of the same year ensured that these private capital firms were making good on their investments. However, as true to form as it can be, the crypto market has taken a nosedive in the middle of 2022, sending the market into a long-drawn bear market. 

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As a result of this, private capital markets have begun to pull out of the crypto market. This is in stark contrast to the beginning of the year when investments had continued to pour into the market. Crypto companies were said to have raised around $1 billion weekly in the first quarter. This number has since dropped since the market crash.

Private capital crypto

Private capital investments drop with market crash | Source: Arcane Research

It is important to note that the funding rounds for cryptocurrency companies did not decline. Rather, the willingness of private capital markets to take a chance with them has become shaky. This has led to fewer funds raised with each funding round. Additionally, the valuations of these crypto companies have declined drastically with the bear market.

BlockFi Funding Spells Doom

There have been some happenings in the crypto market that have served as proof of the fact that private capital is pulling out of the market. BlockFi presents a perfect example of this. The company had held its previous funding round with a valuation of $3 billion back in March 2021. Fast forward a year later and it is now holding funding round at a $1 billion valuation. This is in line with the decline of digital assets all across the space.

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Crypto total market cap chart from TradingView.com

Total crypto market declines to $881 billion | Source: Crypto Total Market Cap on TradingView.com

This decline had been the trigger for private capital to begin pulling out of the market. Not only had small investors clamored to get out, but these big money had also read the room and presumably are taking the best way out.

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It is not all doom and gloom for the crypto companies that have been raising funds though. A notable funding round for the firm a16z, saw it raise $4.5 billion for a fourth crypto fund. However, it is important to note that this funding round had taken place back in April, long before the market crash.

The performance of crypto stocks also serves as a testament to the loss of faith in the market. A fitting example is the Coinbase stock, which was the first crypto exchange to go public. In a little over a year, the value of its stocks is down about 83% from its April 2021 listing.

Featured image from MARCA, charts from Arcane Research and TradingView.com

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