JPMorgan analysts have raised concerns about potential downside risks in the crypto market, citing subdued venture capital (VC) funding flows into the industry so far this year despite the recent market rebound. Analysts stated that their various proxies for crypto VC flows appear relatively tepid year-to-date compared to previous years.
The analysts argue that a recovery in crypto VC flows is a necessary condition for a sustained recovery in crypto markets. Consequently, the subdued VC flows pose a downside risk, according to their analysis. While the crypto industry has attracted $3.2 billion in VC investment year-to-date, this figure lags behind the over $4 billion raised in the first four months of last year.
However, the report acknowledges that more VC firms are raising or have raised new funds amid the crypto market rebound this year. Notable examples include 1kx raising $75 million, Paradigm reportedly in talks to raise between $750 million and $850 million, and Galaxy Digital, Hack VC, and Hivemind Capital reportedly raising $100 million, $100 million, and $50 million, respectively.
Crypto hedge funds are more active this year, with their managed assets increasing sharply to an estimated $20 billion over the past six months, say JPMorgan analysts. Additionally, the analysts stated there is a 50% chance or less that Ethereum ETF will be approved in May. Still, the U.S. Securities and Exchange Commission will come to approve such funds.