Kavita Gupta, founder of a blockchain venture fund, recently raised concerns about the sustainability of the current crypto market. In a recent op-ed, she suggested that the market is driven by an “artificial boom” fueled by venture capital spending rather than genuine user interest.

Excessive Spending in the Crypto Market

During her experience at the Token2049 conference in Singapore, Gupta observed a pattern of excessive spending by crypto projects. Lavish parties, high-end DJs, and extravagant marketing events were common, indicating a shift from genuine user engagement to flashy marketing.

Gupta noted that unlike the last bull cycle in 2021, driven by retail investors and actual capital flow, the current cycle appears to be primarily propped up by venture capital money.

“The money is coming from VCs, who are pumping funding into new layer-1 and layer-2 blockchains that have yet to even launch a testnet but are still raising at billion-plus dollar valuations,” Gupta wrote.

Marketing Over Product Development

According to Gupta, a significant portion of the funding is being spent on marketing and events rather than building sustainable products or communities.

“And clearly, a large portion of that funding is going to so-called ‘marketing expenses,’ which are really just giant parties,” Gupta added.

Understanding Layer-1 and Layer-2 Blockchains

For those unfamiliar with crypto, layer-1 and layer-2 refer to different ways blockchain projects handle transactions. Layer-1 blockchains are the base networks, like Bitcoin or Ethereum, while layer-2 solutions build on top of these to improve speed and reduce costs.

Gupta’s concern is that venture capitalists are investing heavily in projects that have yet to prove their value or utility.

Impact on Token Valuations

Gupta also warned about the impact of these practices on token valuations. Most crypto projects raise funds by issuing tokens, which represent a share in their ecosystem.

“When projects prioritize hype and parties over genuine use cases, it leads to inflated valuations that can’t be sustained,” Gupta mentioned.

This can result in sharp declines in token prices, as seen with recent high-profile projects.

About Kavita Gupta

Gupta is an investor and entrepreneur in the blockchain and crypto space. She co-founded and served as the managing partner of ConsenSys Ventures, a $50 million blockchain venture fund.

For more insights and updates on the crypto market, explore more news on Global Crypto News.

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