No Back to Black for Crypto Any Time Soon, Says JPMorgan

JPMorgan strategists say crypto faces a prolonged slump as top institutions pull back on venture capital (VC) funding.

Analysts said VC funding is currently at roughly $10 billion annually, which is less than one-third of the rate seen in 2021, reported Bloomberg.

“This is a concerning development as it shows reluctance by VC funds to deploy capital into the digital-asset space, increasing the likelihood that the current weakness in crypto markets would be long lasting,” the analysts added.

Quarterly Funding Hits Annual Low, Reports JPMorgan

VCs invested around $5.5 billion in crypto businesses in Q3 2022, marking a new low for the year. While the quarter noted a steep decline, the markets might not become profitable in the near future, said the analysts.

JPMorgan also suggests that the market decline in July and Aug. was not just seasonal as had been predicted. While the past months saw a crypto collapse on the back of Terra (LUNA) crisis, the broader market has not marked recovery.

At the time of writing, while the global cryptocurrency market cap consistently remains above $1 trillion, it is nowhere near its 2021 peak of over $2 trillion.

Regulated institutions, like Santander U.K., are also reportedly monitoring crypto purchases of their users. As per an announcement by the bank, while the institution is taking steps to curb crypto scams, it has put a cap on monthly and daily purchases of virtual digital currency.  

Crypto Plays a Larger Economic Role

Google-owned Alphabet has also blamed crypto business pullback for the reduction in revenue. On the earnings call, the tech giant noted, “In the third quarter, we did see a pullback in spending by some advertisers in certain areas in Search ads. For example, in Financial Services, we saw a pullback in the insurance, loan, mortgage, and crypto subcategories.”

Meanwhile, amid “leaner times,” payments giant Stripe has also announced that it is axing 14% of its workforce.

In addition, more Bloomberg research finds a major fall in crypto donations on the back of the ongoing market weakness. Sept. witnessed a fall of 63% in donations for the U.S. midterm elections compared to June. The midterms will be held on Nov. 8.

In a report released last month, KPMG predicted that a “slowdown in crypto interest and investment, particularly retail firms offering coins, tokens and NFTs,” is a trend to watch out for in the second half of 2022.