Chamath Palihapitiya Predicts $700,000,000,000 in Venture Capital Destruction, Says FTX Crash Just Tip of Iceberg

Billionaire Chamath Palihapatiya is painting a bleak macroeconomic picture despite signs that inflation is starting to cool down.

In a new episode of the All-In Podcast, Palihapitiya doubles down on his call last week that the Federal Reserve will keep hiking interest rates “higher than all of you think” and “higher than all of you want.”

According to the venture capitalist, he sees inflation rearing its ugly head in the next six months, which he says would embolden the Fed to keep raising interest rates that would subsequently trigger another sell-off event in the financial markets.

“We have all of these positive news in the offing but the problem is again, there is still a lot of risk to the downside. We haven’t seen David [Sacks’] second dip in the recession. So that double dip is going to be expensive.

The [Sharpe analysts] think that inflation will come back at some point in the next six months. That will keep the Fed’s foot on the gas, maybe it’s two or three more 50 basis point hikes.”

Palihapitiya predicts that the Federal Reserve will push interest rates to 5.50% until the first half of 2024.

Earlier this month, the U.S. Federal Reserve raised interest rates by 0.75% for the fourth consecutive time to bring the benchmark federal funds rate at a range of 3.75% to 4%.

According to Palihapitiya, a high interest rate environment for an extended period of time will annihilate hundreds of billions of dollars worth of venture capital.

“We’re just starting to see the drawdowns. We’re just starting to see the impacts in people’s portfolios. That will drive behavior change. This SBF (Sam Bankman-Fried) thing is the tip of the iceberg in terms of the money at risk…   

Since 2018 through 2021 and including an estimate for 2022, we have injected $1 trillion into venture capital. If you look at historically how money has been lost in periods like this and you layer that into 2018 to now, what it basically tells you is about $500 billion of that $1 trillion from 2018, 2019, 2020, 2021 and 2022 is going to be destroyed. We haven’t even started to see that yet. 

If you factor in another $100 billion or so from older vintages, we’re talking about a $600 billion or $700 billion destruction of paid in capital.”

Sam Bankman-Fried is the founder and former CEO of FTX, a crypto derivatives exchange that filed for bankruptcy last week.

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