Kavita Gupta, founder of Blockchain Venture Fund, raised concerns in a recent op-ed about the sustainability of the current cryptocurrency market, suggesting that it is driven by an “artificial boom” fueled by venture capital spending rather than genuine user interest.
While writing about her experience at the recent Token2049 conference in Singapore, Gupta observed a pattern of excessive spending by cryptocurrency projects, with lavish parties, high-end DJs, and extravagant marketing events.
In it Luck articleUnlike the last bull cycle in 2021, when retail investors and actual capital inflows paid interest, the current cycle appears to be mainly fueled by venture capital funds, Gupta wrote.
“The money is coming from venture capital firms, which are pumping funding into new layer 1 and layer 2 blockchains that have not yet launched a testnet but are still amassing over $1 billion valuations,” Gupta wrote.
According to Gupta, money is being spent on marketing and events rather than building a sustainable product or community.
“Obviously, a large portion of this funding goes to so-called ‘marketing expenses,’ which are really just giant parties,” Gupta wrote.
For those who are not familiar with cryptocurrencies, Layer 1 and Layer 2 refer to different ways of handling transactions in blockchain projects. Layer 1 blockchains are the underlying networks, such as Bitcoin (BTC) or Ethereum (ETH), while layer 2 solutions rely on them to improve speed and reduce costs.
What worries Gupta is that venture capital firms are investing heavily in projects that have yet to prove their value or benefit.
Token evaluations
Gupta also warned about the impact of these practices on symbolic evaluations. Most cryptocurrency projects raise funds by issuing tokens, which represent a stake in their ecosystem.
However, when projects prioritize hype and partying over real use cases, it leads to inflated valuations that cannot be sustained. This could lead to sharp declines in token prices, as seen in recent high-profile projects such as Wormhole and Celestia (TIA).
Gupta is an investor and entrepreneur in the blockchain and cryptocurrency space. She co-founded and served as managing partner of ConsenSys Ventures, a $50 million blockchain venture fund.
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