VC funding drying up, TradFi fund managers remain optimistic

Dear member,

It’s a challenging environment for Web3 start-ups that are in need of fresh funds as VCs take on a more cautious, risk-off approach. Web3 funding has dropped to its lowest level since the end of 2020, with no signs of reversing anytime soon.

Be that as it may, TradFi fund managers remain optimistic for the long term. Institutional capital in-flows have yet to slow down in recent weeks. Sentiment from participants in the recently concluded Consensus 2023 is still positive, with many projecting further growth in the Web3 space in the coming years.

Despite a significant decline in venture capital funding for Web3 startups, some companies continue to attract investments, such as:

Ripple and Cosmose AI announced a partnership to leverage blockchain and Web3 technologies for financial inclusion and personalized retail shopping experiences. Visa, Google Cloud, Solana Labs, Deloitte, and Fidelity are actively engaging with the Web3 ecosystem, exploring opportunities for cross-industry collaboration and innovation.

Recent failures of behemoths like FTX and increased regulatory enforcement in the U.S. hasn’t deterred big brands and multinational corporations from jumping deep into Web3. While crypto is on a short leash in the U.S., many governments in other parts of the globe have taken a more proactive approach to policymaking.

France is considering a "fast track" option for licensed crypto firms to comply with the upcoming MiCA regulations as quickly as possible. Hong Kong, South Korea, and the EU are implementing or considering regulatory frameworks for crypto assets. Various countries and regions are continuously taking steps to regulate cryptocurrencies and blockchain technology, aiming for market order, transparency, and consumer protection.

Industry experts have differing opinions on the future of crypto, with one predicting significant user growth and another expressing concerns about regulatory restrictions. But one thing is clear: the perception of crypto is constantly evolving.

With regulatory bodies like the FCA acknowledging both its risk and potential, many VCs, institutional investors, and start-ups still remain cautiously optimistic in the short term.

Best regards from the Future,
RFTF.ai 

Market Intel

Signs of early-stage bull market are forming due to Bitcoin capital inflows, according to analytics firm Glassnode, with significant amount being moved back into unrealized profit. Bitcoin is currently trading around $27,443, with potential support levels at $25,000 if price reverses.

Bitcoin's price has gained 6% as concerns over U.S. bank stability, specifically related to First Republic Bank, have bolstered Bitcoin bulls. The possibility of a BTC price short squeeze has increased, with Bitcoin experiencing a swift upside movement during Asian trading.

Traditional asset managers are seeing opportunities to increase their exposure to the crypto sector despite recent market destruction and declines in crypto valuations. During the recent Consensus 2023 event, market participants expressed optimism and emphasized the potential of growth equity and the broader impact of digital assets for the long term.

Venture capital funding for Web3 startups has plummeted by 82% YoY, dropping from $9.1 billion in Q1 2022 to $1.7 billion in Q1 2023. This represents the lowest funding amount for Web3 startups since Q4 2020. The report attributes this decline to investors adopting a risk-off approach and the aftermath of the recent FTX collapse and other crypto lenders, as well as banking issues.

Funding Trends

Thetanuts Finance, a DeFi protocol, has raised $17m in funding to expand its operations and establish new partnerships with various blockchain networks, liquidity providers, market makers, and exchanges.

MetaCRM, a startup focused on building Web3 CRM software, has raised $2.5m in a seed funding round to streamline CRM solutions for Web3 companies and users, connecting on-chain and off-chain data to create blockchain-native solutions and analytics tools.

TinyTap, an ed-tech startup acquired by Animoca Brands, has raised $8.5m against a valuation of $100m in a funding round led by investors including Sequoia China and Polygon. TinyTap offers a library of over 250,000 user-generated educational games in multiple languages, and it has been integrating blockchain technology and non-fungible tokens (NFTs) into its platform to enhance learning materials and provide better equity for teachers.

North Carolina-based company Fluree has closed a $10m Series A funding round led by SineWave Ventures. The company specializes in graph ledger databases and data pipeline tools for trusted and secure data management.

Web2 → Web3 Immersion

Ripple has announced partnerships aimed at supporting 3.7 billion unbanked individuals worldwide. The collaborations involve fintech companies, NGOs, universities, foundations, and social entrepreneurs, including organizations like the World Economic Forum and the Bill & Melinda Gates Foundation.

Cosmose AI has partnered with the NEAR Foundation to introduce Web3 personalization to retail shopping. The collaboration aims to utilize AI and blockchain technology to create hyper-personalized shopping experiences, increase customer loyalty and happiness, and implement a new crypto payment system.

Visa is looking to hire experienced crypto developers to drive mainstream adoption of public blockchain networks and stablecoin payments. Visa aims to continue working with crypto firms and expand its offerings in the space. The company has been testing settlement payments in stablecoin USDC on Ethereum.

Google Cloud is expanding its partnerships with blockchain startups, including Solana, Nansen, Alchemy, Coinbase's Base, and Polygon Ventures to encourage more Web3 projects to utilize its infrastructure. Google Cloud offers benefits such as free credits, technical training, business support, and access to grants for web3 platforms that utilize its services.

Solana Labs is introducing a ChatGPT plugin that will enable users to interact with the Solana blockchain using OpenAI's conversational chatbot technology. The plugin, which will be available in the ChatGPT plugin store, aims to simplify tasks such as checking wallet balances, transferring tokens, and purchasing NFTs on the Solana blockchain.

Deloitte is looking to hire up to 331 crypto professionals in the US. This hiring spree aligns with Deloitte's ongoing interest in working with crypto companies, such as auditing Circle's proof-of-reserves. The company is seeking candidates to lead audit readiness for blockchain transactions, design governance models, and evaluate blockchain reliability.

Fidelity is expanding its presence in the metaverse by offering financial education experiences for investors. The company aims to innovate and experiment with new platforms to engage customers, leveraging the growing market opportunities in the metaverse.

Regulatory Round-up

AU

Gold-backed digital currency to be introduced by the Reserve Bank of Zimbabwe (RBZ) as legal tender to stabilize the local currency, the Zim dollar. The tokens will be backed by the country's gold reserves held by the central bank, allowing residents to exchange their Zim dollars for the gold-backed token as a hedge against currency volatility.

APAC

Public sector workers will receive their full salaries in digital yuan in the Chinese city of Changshu from May 2023. This move is part of China's broader effort to promote the adoption of its CBDC, which likely led to an upswing in Chinese stocks related to digital currencies.

Hong Kong's Securities and Futures Commission (SFC) is set to release licensing guidelines for digital asset trading platforms in May, aiming to provide clear rules for crypto exchanges. Hong Kong seeks to establish itself as a Web3 financial hub and plans to allow retail investors to trade cryptocurrencies like Bitcoin and Ethereum.

South Korea's crypto regulation bill has passed the first stage of review in the National Assembly and is expected to become law in the first half of this year. An important step in establishing market order and transparency in South Korea's crypto ecosystem, the bill aims to provide consumer protection and imposes heavy penalties for non-compliance.

EU

France's financial regulator, the AMF, is considering a "fast track" option for licensed crypto firms to comply with the upcoming Markets in Crypto-Assets (MiCA) regulations as quickly as possible. MiCA, which is expected to come into effect in 2025, aims to establish a consistent regulatory framework for crypto assets across EU member states.

Individual defrauded over 3,000 victims worldwide of more than $110m arrested by Spanish police. The sophisticated organization lured people with promises of high returns and convinced them to invest in non-existent cryptocurrencies.

International

Russia is set to launch a new payment system that allows the use of digital currencies in unrestricted cross-border payments. According to Russian Finance Minister Anton Siluanov, this system will have no restrictions, and once two parties reach an agreement, settlement payments cannot be frozen by any other country.

US

Coinbase has filed a lawsuit against the SEC, seeking to compel the regulator to publicly disclose its response to Coinbase's petition from July 2022. Coinbase's legal action aims to obtain transparency and regulatory clarity amidst potential enforcement actions from the SEC.

A DAO legal framework has been introduced by California Assemblymember Matt Haney via Assembly Bill 1229. If passed, the bill would enable DAOs to incorporate in California, pay taxes, and provide better protection for individuals participating in the Web3 economy.

ARK Invest and 21Shares file a third application for a spot Bitcoin exchange-traded fund (ETF) to the SEC. The SEC has approved Bitcoin Futures ETFs but has thus far rejected spot Bitcoin ETF applications due to concerns about fraud and manipulation. Digital Currency Group (DCG) is also pursuing a spot Bitcoin ETF and has sued the SEC over its rejected proposal.

The Raven Also Spotted

OPNX CEO Leslie Lamb publicly criticized venture capital firms on Twitter after some denied being investors in the crypto claims trading platform. Several companies, including Nascent, Appworks, and DRW Trading, distanced themselves from OPNX and clarified that they did not provide funding or support to the project.

Ex-Goldman Sachs executive predicts over 1 billion users will enter the crypto industry and will see a surge of new users in the current cycle. The increased liquidity in the markets will lead to new innovations and applications. The macro guru also believes that the Fed to reverse course and stimulate markets through money printing, bringing further acceleration and growth to the crypto industry.

“Crypto is dead in the U.S.,” claims tech billionaire and Bitcoin bull Chamath Palihapitiya, due to regulatory restrictions. He pointed to Gary Gensler, the chair of the U.S. Securities Exchange Commission, and the blame placed on crypto for the banking crisis.

Crypto has evolved from being viewed as an "anti-establishment rebellion asset" to a more widespread investment, claims Sarah Pritchard, an executive director at the UK's Financial Conduct Authority (FCA). While the FCA has consistently warned consumers about the risks associated with crypto, Pritchard emphasized that the watchdog has always been open to innovation.