Venture capitalists and investors are rethinking what it means to invest in crypto companies after a possible deal between two of the world largest crypto exchanges, FTX and Binance, collapsed Wednesday, but despite the shocking nature of the ordeal, many are continuing business as usual.
To recap, after a stunning announcement that he had signed a non-binding letter of intent to buy FTX on Tuesday, Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, said Wednesday that Binance will walk away from the deal “as a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations.”
That raised the specter of a potential bankruptcy filing by FTX, the poster child for centralized crypto exchanges, which has raised nearly $2 billion from investors including the likes of Tiger Global Management, the Ontario Teacher’s Pension Plan, BlackRock, and Insight Partners in the past few years. Last year, Sequoia invested in FTX, valuing the company at $18 billion.
For big investors like BlackRock
the chaos of the past couple of days will not have much of an impact on their investment strategy, said Robert Le, crypto analyst at PitchBook, 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 large funds.”
While BlackRock did not comment on how large their investment into FTX was, a spokesperson did tell 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 marked down 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 focus on developing the entire ecosystem without being distracted by retail hype and near-term trends.” He added that “the most interesting observation on this whole FTX fallout is how little it has distracted the core crypto builders I know.”
Francesco Melpignano, the CEO of Kadena Eco, a financial services platform, thinks the FTX-Binance ordeal should serve as a reminder to not invest in hype, but in core, innovative technology. “”FTX is not at its core a Web3 company, innovating and reshaping finance. It’s a Web2 business model that happens to be selling crypto products. Nothing in its tech stack was made possible by blockchain technology,” Melpignano said.
But some think that the events of the past two days will impact how investors conduct due diligence and make investments going forward. “We talk about a crypto winter…I think what happened in the last six months is more like a crypto fall. And what you see now…this is a really major event.” He added that an event like this has already shaken confidence among 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 away. “I’ve been speaking to global investors in the U.S., Europe and Asia and none of them are backing away from crypto. Investors understand that Web3 is a phenomenon and that it’s here to stay.”