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Even by the standards of crypto, phew, what a week. In 10 days, FTX went from one of the biggest, most mainstream players in the sector to announcing bankruptcy. Will the crash cause investors to rethink their interest in crypto? That’s the question animating this week’s forecast, and it’s a major piece of the narrative that this is “crypto’s Lehman moment.”
You can see the logic: This was plausibly one of the largest bank runs in history, and it may be the biggest single loss for venture capitalists ever. Maybe institutional investors have seen enough.
On the other hand, a lot of investors are bought into the potential of blockchain and web3. And the reports of mismanagement and potentially worse at FTX might convince even relatively risk-averse institutions that the problem was the company not the sector. Or, put it this way: If all the previous swings and scams and hacks weren’t enough to persuade an investor to steer clear, is this really going to change their mind?
This week’s forecast looks at this question through one key sector for funding crypto: venture capital.
Specifically: Will US venture capital investment in crypto exceed $2 billion in either Q4 of 2022 or Q1 of 2023?
Make a prediction at the bottom of this newsletter.
Last week, FTX was the third-largest crypto trading platform worldwide. Its 30-year-old founder, Sam Bankman-Fried (SBF) “was the most important person in crypto,” The Economist wrote this week. FTX, which he founded in 2019, was headquartered in the Bahamas, with a US-based affiliate, FTX US.
FTX and SBF spent billions on a major marketing push over the last year, to establish the company as mainstream and respectable among policymakers, investors, and consumers. (SBF took an interest in forecasting through his philanthropic efforts but has no financial connection to this newsletter.)
Along the way, FTX raised just under $2 billion from investors, including well-known VC firms like Sequoia and Wall Street staples like BlackRock. They did not receive any board seats and those investments are now worth zero.
FTX acquired multiple distressed crypto firms earlier this year. At least one of them is now searching for a new acquirer.
So… then what happened? FTX lent billions in customer assets to Alameda Research, a hedge fund also founded by SBF, according to the Wall Street Journal. A news report revealed that Alameda owned lots of the crypto token FTT, issued by FTX. After which a competitor—Binance—announced that it would be selling its FTT holdings, which seemingly set off a flood of withdrawals that took FTX down. The exchange held just $900 million in liquid assets—half of it stock in one company—against $9 billion in liabilities, the Financial Times reported Saturday.
Coinbase, the US-based, publicly-traded crypto exchange, told investors last week that it had no exposure to FTX and that it was not vulnerable to bank runs because it does not lend out customer assets. Its stock price dipped on the FTX news but has mostly recovered.
More detail on the timeline from Reuters.
From around the internet…
Nonrival also asked several VCs for their perspective:
For more on how VC is faring overall, beyond crypto, read Nonrival’s Oct. briefing.
Deadline: Make a forecast by 9am ET Tues. Nov. 15
Fine print: This question will be solved by PitchBook’s analysis of US VC Deal Activity in Cryptocurrency/Blockchain following the release of Q1 2023 data.
The newsletter where readers make predictions about business, tech, and politics. Read the newsletter. Make a prediction with one click. Keep score.
Welcome to Nonrival, the newsletter where readers make predictions about business, tech, and politics. This is the first scoring email of Season 3 so everyone's total points have been reset, and now are based on just last week's question. Thanks for forecasting. Send feedback to newsletter@nonrival.pub. In this issue Scores: Will the preliminary April Index of Consumer Sentiment be higher than the final March index of 79.4? Date: This question was posed to readers on Sunday, April 7. Outcome:...
Welcome to Nonrival, the newsletter where readers make predictions about business, tech, and politics. Thanks for forecasting. Send feedback to newsletter@nonrival.pub. In this issue Recap: Will the preliminary April Index of Consumer Sentiment be higher than the final March index of 79.4? Average reader forecast: 59% Your forecast: [040724 GOES HERE]% The vibes will keep improving Most of you think that the April data on US consumer sentiment will improve over March's three-year high. As...
Welcome to Nonrival, the newsletter where readers make predictions about business, tech, and politics. How it works: Read the newsletter, then click a link at the bottom to make a prediction. You'll get scores based on how accurate your prediction is, compared to what actually happens. New cadence: I'll be sending one new forecast question a month, usually the first Sunday. Thanks for forecasting. Send feedback to newsletter@nonrival.pub. In this issue Forecast: Will US consumer sentiment...