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JP Morgan expressed concerns about subdued venture capital funding in the cryptocurrency sector this year, despite a strong recovery in crypto prices.
According to the bank's analysts, the relatively muted investment inflow into the crypto industry could pose a downside risk to the sustainability of the current market boom.
The JP Morgan team highlighted that venture capital inflows into the crypto industry appear to be quite muted since the start of the year compared to previous years. “Our various proxies for crypto VC flows have looked rather subdued since the start of the year [year to date] compared to previous years,” said the report published on Thursday.
The analysts added that a recovery in venture capital funding is crucial for a sustained recovery in crypto markets.
Recent data suggests that the crypto sector has attracted $3.2 billion in venture capital investment so far this year, down from the over $4 billion in the first four months of last year.
Still, there is good news: more and more venture capital firms are getting into the game and raising new funds or have recently done so, focusing on the crypto market.
Additionally, major players such as Galaxy Digital, Hack VC and Hivemind Capital are also in the process of raising adequate funds for their new crypto-focused investment vehicles.
The Crypto Accelerator Alliance achieved first close of its third fund in February, securing $10 million each from Brevan Howard Digital and Galaxy Digital. It plans to raise another $80 million by July.
As the pace of venture capital funding increases, crypto hedge funds have been particularly active this year. Its assets under management have risen sharply in the last six months and are now valued at around $20 billion.
In the same report, JP Morgan analysts also touched on regulatory developments and noted that the probability of a spot ETF being approved by May is no more than 50%. This follows the SEC’s investigation into the Ethereum Foundation.
Market sentiment surrounding the approval appears to be waning, as evidenced by the growing discount to Grayscale Ethereum Trust's NAV (net asset value). This discount increased from 8% to 22% last month.
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