Venture capitalists and investors are rethinking what it means to invest in crypto companies after a potential deal between two of the world’s biggest crypto exchanges, FTX and Binance, fell apart on Wednesday. But despite the shocking nature of the ordeal, many are carrying on as usual.
To sum up, after an astonishing announcement that he had signed a non-binding letter of intent buy FTX On Tuesday, Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, said wednesday that Binance will withdraw from the deal “following the company’s due diligence, as well as the latest news reports regarding mismanaged client funds and alleged US agency investigations.”
This raised the specter of a potential bankruptcy filing by FTX, the flagship child of centralized crypto exchanges, which has raised nearly $2 billion from investors including Tiger Global Management, Ontario Teachers’ Pension Plan, BlackRock, and Insight Partners over the past few years. Last year, Sequoia invested in FTX, valuing the company at $18 billion.
For big investors like BlackRock BLK,
the chaos of the past two days won’t have much of an impact on their investment strategy, Robert Le, crypto analyst at PitchBook, said in an interview with MarketWatch. “I don’t think it changes their strategy much with crypto. I think they will continue to make their investments. They have really, really big funds.
Although BlackRock has not commented on the size of its investment in FTX, a spokesperson told MarketWatch that its funds and accounts hold a very small minority position in FTX. The Ontario Teachers’ Pension Plan did not comment on the nature of its investment. Sequoia Capital reduced its FTX investment to $0.
Other investors have faith in the broader crypto industry and its long-term potential. Tekin Salimi, founder of Dao5 capital, an early-stage Web3 fund, said his company “operates with a long-term goal on developing the entire ecosystem without being distracted by hype and trends. short term”. He added that “the most interesting observation about all of this FTX fallout is how distracted it has been to the major crypto builders I know.”
Francesco Melpignano, CEO of Kadena Eco, a financial services platform, thinks the FTX-Binance ordeal should serve as a reminder not to invest in hype, but in innovative core technology. “”FTX is not primarily a Web3 company, innovating and reshaping finance. It is a Web2 business model that sells crypto products. Nothing in its tech stack was enabled by blockchain technology,” Melpignano said.
But some believe the events of the past two days will impact how investors do their due diligence and make investments going forward. “We’re talking about a crypto winter…I think what’s happened in the last six months is more like a crypto crash. And what you’re seeing now…it’s a really major event. Le added that an event like this has already shaken the confidence of investors he has spoken to.
Pascal Gauthier, CEO and chairman of Ledger, told MarketWatch in an email that he thinks there are value propositions that investors will have to think twice about investing in, such as centralized exchanges. But for crypto more broadly, investors aren’t backing down. “I’ve spoken to global investors in the US, Europe and Asia and none of them are backing down from crypto. Investors understand that Web3 is a phenomenon and it’s here to stay.