Welcome back to Chain Reaction.
Last week, we talked about an arrest in the crypto world that had investors sweating. This week, we're talking about rocking through the general malaise of a crypto winter.
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Crypto has had a brutal couple months and yet, the show goes on — metaphorically and literally for the Winklevoss twins who, despite announcing significant layoffs and suffering a federal lawsuit this week against their crypto exchange Gemini, have started the multicity tour for their cover band “Mars Junction” which plays hits from Blink 182, The Killers and Rage Against The Machine.
The band’s billionaire frontmen (both immortalized by Armie Hammer in the film "The Social Network") remade their image with a substantial bet on the bitcoin ecosystem years ago and while Gemini lags plenty of competitors, the exchange hit a $7.1 billion valuation last year, but lawsuits from investors and regulators teamed with layoffs could spell trouble ahead nonetheless.
— Mars Junction (@MarsJunction) June 6, 2022
High-flying valuations were a hallmark of the 2021 bull run for crypto during which unicorn startups were minted on a weekly basis as money dumped into the space even while consumer interest in web3 services seemed to grow more modestly. But as investors look at the public travails of Coinbase, startups that didn’t raise quite enough are about to see more hostile terms coming their way.
This week, The Block and Bloomberg reported that crypto lending platform BlockFi was taking a massive valuation haircut and was aiming to raise a round at a $1 billion valuation just over a year after raising cash at $3 billion.
Investors are getting more conservative with their capital but also growing a bit more skeptical of exit options.
For public behemoths like Coinbase, the hit to their stock price has left them scrambling, reversing a hiring spree on a dime and rescinding offers to prospective employees. Coinbase’s misfortunes are likely a leading signal of tough times ahead for private crypto startups who may not have raised as much runway as necessary. Companies that are in dire need for growth capital won’t be in a great spot, though venture capitalists like a16z will certainly try to keep the party going for seed stage startups with new funds devoted largely to new bets.
The broader tech industry hasn’t seen a prolonged recession in a couple decades, but crypto startups have dealt with plenty of brutal “winter” periods. As a result one would expect they’d be a bit better prepared for the good times to end … and yet plenty of top crypto companies are signaling that this latest crash caught them off guard.
the latest pod
It’s Anita here — on this week’s episode, Lucas and I sadly had to be the bearers of some bad news as the crypto market downturn begins impacting employees. Some of the biggest crypto companies are joining the recent wave of tech startups firing people en masse. We talked about Coinbase’s recent move to rescind job offers it had already extended to candidates who had committed to work there, Gemini’s decision to sack 10% of its staff and how exactly things have gotten so ugly so quickly.
We also talked about the new bill Senators Cynthia Lummis and Kirsten Gillbrand introduced this week that could provide long-awaited regulatory clarity for crypto, getting into why we think this is a long-term win for companies building in the space and investors holding digital assets.
Sriram Krishnan, a general partner on a16z’s crypto team (and co-host of “The Good Time Show,”) joined us to shed light on some of his recent Twitter beefs and how his experience as an exec at some of the largest social media companies informs his approach to web3 consumer investing.
follow the money
Where startup money is moving in the crypto world:
Mobile investment platform Delphia raised a $60 million Series A led by Multicoin Capital.
Calaxy, a web3 social marketplace, nabbed $26 million in strategic funding co-led by Animoca Brands and HBAR Foundation.
Entropy, a decentralized crypto custodian, raised $25 million for its seed round led by a16z.
“It’s Always Sunny in Philadelphia” actor Rob McElhenney’s web3 entertainment startup, Adim, raised $5 million in seed funding in an a16z-led round.
Decentralized exchange ApolloX secured an undisclosed amount in seed funding from investors including Binance Labs and Kronos Research.
Euler Finance, a non-custodial crypto lending protocol, brought in $32 million with Haun Ventures as lead investor in its Series A.
Data infrastructure provider Vybe Network announced the close of a $10.5 million Series A investment led by FTX.
Mash, a Lightning Network-enabled payments platform, secured $6 million in seed funding co-led by Castle Island Ventures and Whitecap Venture Partners.
Cryptio, an institutional crypto accounting platform, snagged $10 million in a Series A led by Point Nine.
NFT portfolio management startup Floor raised an $8 million seed round led by 6th Man Ventures.
the week in web3
As Anita heads to the Consensus crypto conference in Austin this week, we’ve been thinking about the aspects of web3 that still seem to excite and energize crowds, even during a tough period in the markets.
Web3 entrepreneur Tux Pacific summed it up well: “In fact, I’ve never felt I’ve been in a space where it’s been more acceptable for people to be so different. If you go to a [crypto] conference, it’s just filled with weird, weird people,” Pacific told Anita in an interview. Pacific, one of the rare trans, queer founders in crypto with big-name venture backing, also talked about how their unique background informs their fresh approach to building a crypto custody company.
Maybe it’s a bold time to raise capital to invest in web3, but Ledger, a hardware-focused crypto security startup, has teamed up with French venture firm Cathay Innovation to do exactly that. The pair raised $110 million to invest in early-stage crypto startups. Ledger’s founder and CEO, Pascal Gauthier, told Anita why he’s so confident that now is a good time to be deploying capital in crypto.
Solana Labs is doubling down in South Korea, where it’s seeing growing demand for gaming and NFTs. Solana Ventures and Solana Foundation have set up a $100 million fund to support startups in the country — Jacquie has the details.
Here's some of this week's crypto analysis you can read on our subscription service TC+ (written by TC's Jacquelyn Melinek):
Proposed bipartisan US crypto bill could be ‘sigh of relief’ for the industry
Earlier this week, U.S. Senators Cynthia Lummis, Republican of Wyoming, and Kirsten Gillibrand, Democrat of New York, proposed a crypto bill that could provide guide rails around the digital asset space. The bill addressed many corners of the crypto world and has market players calling it a “step in the right direction” and not an “escape” to strong regulation, but a shift with clearer rules.
DOJ case against ex-OpenSea exec could label NFTs as securities, former SEC lawyer says
A former executive at OpenSea, the biggest NFT marketplace, was arrested and charged last week “with wire fraud and money laundering in connection with a scheme to commit insider trading in [NFTs],” according to a press release from the U.S. Attorney’s Office for the Southern District of New York. Now, this case might have the potential to determine whether NFTs are defined as securities.
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