The Crypto VCs Dilemma: Betting on Bitcoin and Ether Over Emerging Startups
Crypto VCs Pull Back – The cryptocurrency industry stands out for allowing investors to bypass early-stage risks, thanks to the strong returns from Bitcoin and Ether, according to venture capitalist Adam Cochran. Cochran, a partner at Cinneamhain Ventures, highlighted in a series of posts on X on August 9 that venture capitalists (VCs) have significantly slowed their investments in the crypto space.
Bitcoin and Ether Outperform Traditional Index Funds
Cochran explained that most VC firms work with limited partners (LPs) who seek to outperform returns from index funds. He noted that Bitcoin and Ether, with their strong performance, present a more favorable risk-reward ratio compared to other industries. According to Curve.eu data, Bitcoin has delivered an average annualized return of 60% over the past decade, while the S&P 500 index has averaged just 13.20% in comparison.
VC Firms Opt for Less Risk, Focus on Bitcoin and Ether
This impressive performance allows VCs to adopt a more conservative approach, focusing on Bitcoin and Ether rather than engaging in early-stage investments in Web3 startups. Cochran pointed out that in other industries, VCs typically take early risks because they lack the strong returns that BTC and ETH provide.
During the previous crypto cycle from 2020 to 2024, VC firms appeared active by investing in applications that had already proven successful. Cochran noted that these firms aimed to capitalize on late-stage consumer adoption, rather than pursuing groundbreaking innovations.
The Burnout of Narrative Trends in Crypto
Cochran also commented on the exhaustion of recent crypto trends such as NFTs, AMM forks, decentralized finance (DeFi), and Layer 2 solutions, stating that the next big trend remains unclear. He criticized most VC firms for branding themselves as pro-innovation while merely capitalizing on breakout trends without genuinely pursuing high-risk, high-reward ventures.
Crypto VC Funding Trends in 2024
Despite a slowdown in early-stage investments, crypto venture capital funding surpassed $1 billion in three separate months in 2024: March ($1.09 billion), April ($1.04 billion), and July ($1.01 billion), as reported by RootData. However, this figure remains significantly lower than the funding levels seen two years prior, where each of the first four months of 2022 saw over $4 billion in crypto venture capital funding.
A Shift in VC Strategy
On August 9, another figure in the industry, known as Beanie, criticized the current state of crypto VC funding, claiming that most crypto VCs are merely tech VCs rebranding themselves to raise more money. Beanie argued that these firms fail to understand the nuances of the crypto industry and do not add sufficient value by getting involved in the early stages of emerging projects.
In summary, while Bitcoin and Ether continue to offer strong returns, allowing VCs to minimize risk, the crypto industry is grappling with the challenge of identifying the next major trend, as traditional venture capital firms cautiously navigate this evolving landscape.
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