According to a report titled ‘Catching the Eyes of Investors’ by the business lending firm Clarify Capital, more than half of the investors interviewed have decided not to participate in any crypto investment in 2023. Many of them are now shifting towards Artificial Intelligence and other technologies.
Although 2022 was a brutal and challenging year for the crypto industry, recently, we’ve been recording constant growth and price surges, and there has been some renewed enthusiasm in the space.
But, this expository report still shows that investors have not recovered from the ripple effects of the collapse of Terra and FTX and other major unfortunate developments that plagued the industry throughout the last year.
More on the investment report
The Catching the Eyes of Investors report says 52% of the 254 investors interviewed plan to avoid investing in cryptocurrencies in 2023.
Also, 41% of the investors interviewed said they are likely to invest in technology, while 30% are poised to invest in Artificial Intelligence. The latter is understandable, considering the recent rise in hype and popularity of OpenAI’s text-based AI platform ChatGPT and generative AI.
Additionally, the Clarify Report shows that investors are most likely to flock toward businesses that have profitability (44%), a high potential return on investment (44%), and strong leadership (28%). Also, the investors consider it a major ‘red flag’ if a pitch seems ‘too good to be true.’
The Catching the Eyes of Investors report might not be far from the truth, considering the recent dynamics in the crypto market. Recall that last week, Technext reported how Venture Capital (VC) investments into cryptocurrency firms continued to fall in Q1 of 2023, as only $2.4 billion worth of VC funding was made, which is the lowest amount recorded since Q4 2020, according to a report from Galaxy Research.
Crypto and blockchain startups have continued to face a tougher fundraising environment amidst concerns over the sector’s growth prospects. Venture capitalists are now doing due diligence after several massive failures in the industry.
Why is there a decline in investors’ interest?
Recent hits to the crypto markets have caused investors to lose confidence in the industry. Many factors like market volatility, fraud, scams, crypto exchanges’ bankruptcy, hacking incidents, and regulatory hurdles have contributed to this decline in trust.
One of the most prominent factors is market volatility. Crypto markets are known to be notoriously volatile, and a significant chunk of crypto investments have performed worse than expected.
Also, the regulatory landscape surrounding the industry recently is a factor in dwindling confidence. In the past couple of months, authorities and regulators globally have been increasingly scrutinising the industry, leading to the closure of prominent crypto firms like Paxful, with the largest exchange in the Industry, Binance, also having its fair share of the heat. This lack of clear guidelines has left many investors needing clarification about the future of cryptocurrencies.
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Another factor is the prevalence of fraud and scams. Hacking incidents have increased, with hackers targeting individual investors and exchanges to steal funds. Although it could be said that cryptocurrencies are not inherently fraudulent, lack of regulation and oversight has led to increased fraudulent activities.
What should be done?
Notably, cryptocurrencies are still a new and evolving asset class, and these challenges are expected to be addressed over time.
Restoring confidence in the safety and reliability of the industry to regain investors’ trust requires some steps. One of the biggest challenges with cryptocurrencies is the need for more regulation. Innovators and regulatory bodies must find a way to collaborate and build a regulatory framework to protect investors and prevent fraud.
Another way is to enhance the security of blockchain protocols. Investors must feel confident that their investments are safe. Crypto firms must prioritise safety and implement practices to protect users’ assets. In a nutshell, restoring investors’ confidence in the safety and reliability of cryptocurrency investments will require a collaborative effort from all stakeholders.
Then, the subsequent months will reveal whether the sector can regain momentum and attract more investors or if the decline of trust and slump in funding becomes a more prolonged trend.
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