The FTX debacle hasn’t changed the trajectory of the Triangle’s most well-known investor in the crypto sector.
Chapel Hill’s Morgan Creek Capital is still bullish on crypto and blockchain – so much so that it recently invested as part of Israeli startup Chain Reaction’s $70 million round. CEO Mark Yusko said Chain Reaction has “incredible technology.”
“They are innovating in chip design and chip capabilities for securing blockchain networks,” he said. “They’ve got a huge innovation edge, superior to all of the great competitors out there.”
Morgan Creek’s latest investment comes months after the FTX collapse, which has resulted in federal charges for FTX leader Sam Bankman-Fried and a major black eye for the crypto community. Other companies were caught in the FTX fallout, including Morgan Creek portfolio firm BlockFi, which has since filed for Chapter 11 bankruptcy reorganization.
“They were victims of a fraud,” Yusko said of BlockFi. “We’re still owners of the company, but we’ve written it down and taken our loss. If things turn out for the better, we’ll write it back up. We’re focused on the next play.”
Yusko maintains that, long term, the investment potential in crypto is huge. He recalls how when Bernie Madoff’s scheme hit headlines, news reports tried to tie in the entire hedge fund industry – even Morgan Creek.
“That’s the nature of the beast,” he said. “People like a negative story.”
Risk is the “nature of the business of venture capital," Yusko said.
“There are winners and there are losers and we keep plowing forward,” he said. “There’s just so much nonsense out there about the challenges of a specific company. … There are 500 exchanges in the world and one went under, not the end of the world.”
The FTX situation does not change Yusko's outlook – either on crypto or on venture capital.
“Investing in innovation, I think, is still the coolest thing there is,” he said.
After months of talk of a "crypto winter," Yusko says spring has arrived with summer just a few months away. And if he’s right, that’s good news for the Triangle, where multiple crypto startups have expressed concern about raising capital.
“Good ideas will always find capital,” Yusko said. “That’s been true of every downturn in history and every downturn is followed by an upturn.”