Eddie A. Young
A year ago, analysts at J.P. Morgan noted the rapid influx of venture capital into the crypto space. However, a dramatic decline in investment has now taken place. So, what's the reason behind this shift? It seems that all the hype and money is now flowing into the realm of artificial intelligence (AI).
This year, venture capital activity has been negatively impacted by elevated interest rates and an environment of economic uncertainty. However, the AI sector has been an exception, displaying remarkable buoyancy. In fact, according to a recent report by Crunchbase, almost 20% of global venture funding in 2023, amounting to a staggering $28 billion, can be attributed to AI.
The launch of OpenAI's ChatGPT last year has had a significant impact on investment in AI. It has emerged as one of the few areas in venture capital that continues to generate optimism. In the United States, second-quarter venture investment fell by 48% compared to the previous year, accompanied by a sharp decline of 55% in fundraising activities. These observations were highlighted by Steven Alexopoulos and his team at J.P. Morgan in a note on July 10th.
On the other hand, the crypto industry, which has battled against a bear market for over a year and faced increasing regulatory challenges in the U.S., has suffered greatly. Third-quarter venture investment in crypto in the U.S. has experienced a staggering 83% year-over-year decline, while crypto and blockchain companies have witnessed a daunting 94% decrease.
This drastic shift in investment trends reflects how quickly investors have moved on from lofty aspirations associated with Web3—an ambitious vision of the internet based on decentralized blockchain networks and virtual experiences within the "metaverse."
Take Meta Platforms (ticker: META), for instance. The Facebook and Instagram parent changed its name in late 2021 to reflect a focus on the metaverse, and began funneling billions of dollars into building out the technology. Its stock price fell some two-thirds between late October 2021, when the name change was announced, and the end of 2022, while the tech-heavy Nasdaq Composite index lost just a third by comparison.
Now, Meta, like chip maker Nvidia (NVDA) and OpenAI investor Microsoft (MSFT), is an AI play while metaverse ambitions appear to be quietly flailing by the wayside.
Meta stock is up 158% year to date, but it has far less to do with Web3 than hopes for things like AI-powered chatbots.
Of course, market trends are just that. Crypto is still filled with perma-bulls, and money that was on the sidelines may start to move in on signs that the regulatory outlook might actually be improving.
A recent court case between token issuer Ripple and the Securities and Exchange Commission delivered the industry a partial win—and, crucially, provided one of the first inklings of clarity over whether digital assets are securities. It may take some risk off the table for VCs.
Crypto will still have some convincing to do. Kate Laurence, co-founder and general partner at Bloccelerate, a Web3-focused venture fund, told ’s last month that regulatory pressures “do not make crypto uninvestible,” but many companies “have already adjusted their strategies and moved their operations overseas.”
The crypto world has been eagerly awaiting a sign of resurgence, hoping for wins in court or a victory at the Securities and Exchange Commission (SEC) with the consideration of new applications for Bitcoin ETFs. However, for now, Silicon Valley's enthusiasm for crypto remains dampened. Instead, it is the AI bubble that continues to dominate the spotlight, stealing all the attention and leaving crypto in its shadow.
Despite its best efforts to stage a comeback, crypto is finding it difficult to regain its former glory. The allure of artificial intelligence (AI) has captivated the tech industry, preventing crypto from reclaiming its throne. As more and more applications for Bitcoin ETFs undergo evaluation by the SEC, the outcome remains uncertain. The potential regulatory approval or advancements in the courtroom could be the catalyst needed to reignite Silicon Valley's interest in the crypto market.
Nevertheless, until such victories occur, the AI bubble remains firmly intact, maintaining its firm grip on investors and innovators. With its extraordinary potential and promising opportunities, AI continues to amass support and investment within Silicon Valley. Crypto, on the other hand, is left hoping for a breakthrough moment that would shift the focus back onto its own potential.
In this battle between the AI bubble and crypto, there can only be one prevailing force. For now, it seems that AI has emerged victorious, captivating the tech world and overshadowing any signs of a crypto resurgence on the horizon.
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