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Startups are a microcosm of the economy and we can observe that things are changing quickly towards a recession footing. The effects of inflation on valuations are readily apparent, but we also see that things were too good to be true and investors and late stage companies exploited it.
Like many financial services hedge-fund crossover investing makes money by charging fees for assets under management. They bring in more investors by showing gains in the market. In late stage startup investing, this creates the incentive to inflate valuations. By deploying larger amounts of money faster than traditional venture capital, hedge-fund crossover investors can win deals and push the valuation higher in subsequent rounds showing higher and higher paper gains.
A recent analysis of the trading volume of NFTs found that it fell 97% from $17 billion in January to $466 million in September.