Crypto’s ‘artificial boom’ is VC-driven, claims Kavita Gupta

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As a seasoned analyst with over eight years of experience in the volatile and ever-evolving world of cryptocurrencies, I find myself deeply troubled by the current state of affairs in this industry. Having attended my fair share of blockchain conferences, including the recent Token2049 conference in Singapore, I can’t help but notice a disturbing pattern: an alarming focus on extravagant parties and marketing events, at the expense of building a sustainable product or community.

In a recent opinion piece, Kavita Gupta, founder of a blockchain investment fund, voiced her worries regarding the long-term viability of the present cryptocurrency market. She posits that this market surge is more likely the result of artificial inflation caused by venture capital investments, rather than genuine user demand.

At the Token2049 gathering in Singapore, Gupta noted a recurring trend among crypto initiatives: they tend to splurge excessively, hosting opulent parties, hiring top-tier DJs, and organizing elaborate promotional events.

In her Fortune article, Gupta stated that unlike the previous bull market in 2021 where individual investors and genuine funds were the main drivers of interest, it appears that the current market is predominantly fueled by venture capital investments.

According to Gupta’s post, the funds are being provided by Venture Capitalists, who are investing heavily in newly developed layer-1 and layer-2 blockchains that haven’t even started their testing phase, yet they are still valued at over a billion dollars.

As per Gupta’s statement, it appears that funds are being allocated more towards marketing activities and organizing events, instead of focusing on creating a long-term, sustainable product or fostering a strong community.

Moreover, it’s evident that a significant chunk of the budget is being allocated towards what Gupta refers to as “marketing costs,” but in essence, these are simply extravagant events disguised as marketing activities.

For those new to the world of cryptocurrency, the terms “layer-1” and “layer-2” describe distinct methods that blockchain projects employ for processing transactions. Layer-1 refers to the foundational networks, such as Bitcoin (BTC) or Ethereum (ETH), whereas layer-2 solutions are built on top of these existing networks to enhance speed and lower costs.

Gupta expresses worry that venture capitalists are pouring significant resources into initiatives whose worth or usefulness has not been established.

Token valuations

Additionally, Gupta highlighted potential effects of such practices on the worth of these digital tokens. The majority of cryptocurrency initiatives gather resources through the distribution of tokens that symbolize ownership or participation within their respective networks.

In a recent article for Fortune Magazine, my experience as a cryptocurrency venture capitalist for eight years led me to contemplate the question of who is financing extravagant events and inflating valuations for pre-testnet products. The role of exchanges and multibillion-dollar token launches without sufficient liquidity or causing significant financial distress has become a topic of concern, as these practices have become increasingly prevalent.

— Kavita Gupta (@KavitaGupta19) October 1, 2024

But when initiatives focus more on excitement and social events than real-world applications, they tend to overvalue themselves. This often results in a collapse of token prices, as demonstrated by high-profile projects such as Wormhole and Celestia (Tip: be informed about these developments).

Gupta plays a role as both an investor and business owner within the realm of blockchain technology and cryptocurrency. Alongside other partners, she established and led ConsenSys Ventures, a venture capital fund dedicated to blockchain, worth $50 million.

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2024-10-01 17:14