Severe bear markets in the cryptocurrency market are often accompanied by significant setbacks for investors, such as venture capital firms. And for good reason: the valuation of certain popular projects is now falling well below the amount of their fundraising.
Crypto projects: fundraising vs. current valuations
Every bull market in the cryptocurrency market is accompanied by investor euphoria about the next most promising sectors and/or projects, in order to ensure significant and long-term returns.
This is particularly true for venture capital (VC) firms, which are involved in this type of financial strategy, sometimes with very large amounts of money raised and other initial token sales set up by certain popular crypto projects.
These structures’ investments reached a total of $4.6 billion in the third quarter of this year, as Bitcoin prepared to reach its latest historic high, trading above $110,000. This is a record unmatched since 2022, which is now being matched by the current decline.
Indeed, data collected by the CryptoRank website paints a critical picture, with the amounts raised during the financing of certain crypto projects now (far) exceeding their current capitalization.
During bullish phases and narrative hype, venture capital funds tend to overvalue projects and assign them aggressive valuations. But once sentiment subsides or the narrative loses traction, the majority of projects undergo a reality check and the market readjusts these euphoric figures.
CryptoRank
Crypto is currently “a graveyard for VC money”
Of course, investing in the cryptocurrency sector appears to be a risky bet, especially when looking at the issue once the market downturn has begun. The current situation is being compared to “a graveyard for VC money,” according to the X account of the crypto trader known by the pseudonym Seraphim.
Crypto is currently a graveyard for VC money, team token allocations, and secondary market buyers. It’s an absolutely brutal purge, from which only a select few (10 at most) will survive.
Seraphim
Among the main examples mentioned by CryptoRank are the French startup Bubblemaps, whose BMT token is currently valued at $6 million following a 77% drop from its March peak, and Plasma, a blockchain specializing in stablecoins backed by Tether and Bitfinex, which recently found itself in a dispute with a venture capital firm claiming 278.5 million XPL tokens.
However, some of the data presented by CryptoRank appears questionable, particularly regarding the amounts raised by certain projects and the comparison made with their tokens as the sole unit of measurement of their actual valuations.
Nevertheless, the declines are very real, even if there is still hope that some of them will be short-lived, particularly for projects with the strongest fundamentals.
