Coinbase Global Inc., one of the world's major cryptocurrency investors, has seen a decline in its investment activity in recent months, even as crypto companies turn away from crypto venture capital. According to PitchBook data, Coinbase is the largest sponsor of industry startups in history by the number of deals, but its investment activity has dropped.
"The decline is part of a broader trend of disinterest in investments in crypto companies, which often have significant venture arms. While overall venture funding for cryptocurrencies fell by 63% to $2 billion in the third quarter compared to the same period last year, many corporate venture firms are cutting it even faster," says crypto analyst Robert Lee from PitchBook.
"The decline, combined with a more significant shift towards smaller bets, indicates a more cautious approach by corporate investors. In such a situation, they want to focus on their core business," he added.
Coinbase has altered its capital course, focusing more on startups based outside the United States as regulatory scrutiny on the crypto industry intensifies.
"We see some companies and founders with great ideas, and they say, 'Okay, I need to exclude the U.S. from my business plan and not serve U.S. customers,' and that's a shame," said Hulie Tejiwani, Director of Corporate Development and Venture Projects.
Despite the slowdown in growth, Tejiwani stated that his team is actively deploying capital and has made over 50 investments in 15 countries over the past year. While American startups face significant obstacles, the company sees growth potential in India, Singapore, Australia, and the UK.
Other major crypto companies are also revising their strategies. Brandon Gath, Managing Partner of Kraken Ventures, the venture arm of the Kraken cryptocurrency exchange, stated that the number of deals the unit has made in the past year has decreased, but his team is still actively investing.
"For the past two years, we usually close three to four new deals per quarter and invest about $3 million in capital," said Gath, adding that Kraken Ventures maintained the same pace in the third quarter of this year.
Gath mentioned that Kraken Ventures is still in the process of raising a new $100 million fund and continues to invest beyond the crypto industry. About 40% of Kraken Ventures' startups are based in the U.S., 40% in Europe, and 20% elsewhere.
Last year, the group invested in a non-crypto startup called Pinwheel, which primarily provides payroll services but could also assist the crypto industry by simplifying employees' receipt of salaries in digital currencies like stablecoins.
Binance Labs, the venture arm of Binance Holdings Ltd., the world's largest cryptocurrency exchange by trading volume, is also investing in cryptocurrencies and claims it is not changing its strategy.
"Binance has faced serious regulatory issues in the U.S., including lawsuits that have seriously damaged its U.S. affiliate Binance.US and forced many employees to leave the country quickly, but the venture division, which manages $9 billion in assets, continues to invest in new crypto projects, including in the U.S.," said Dana Hou, overseeing the division's business strategy and operations.
According to Hou, Binance, which invested in the bankrupt cryptocurrency exchange FTX, also aims to properly vet the projects it invests in. Venture capitalists came under sharp criticism after the FTX crash, with critics claiming that their firms did not conduct sufficient due diligence on the company.