VC firms are delaying crypto investments for ‘different reasons’ – Venture Capitalist
The cryptocurrency industry is rare because the strong returns from Bitcoin and Ethereum allow venture capitalists to avoid the initial risks they have to take in other industries, the venture capitalist said.
“VCs have been very slow to invest in crypto for a slightly different reason,” Adam Kochan, a partner at venture capital firm Cinneamhain Ventures, wrote on August 9 in the X Posts thread.
Cochrane explains that most venture capital firms have limited partners (LPs) who are primarily interested in maximizing the returns of index funds. He added that in the medium term, the risk-reward ratio of owning Bitcoin (BTC) and Ethereum (ETH) “easily beats” index funds.
According to Curve.eu data over the past ten years, Bitcoin has had an average annual return of 60%, while the S&P 500 index has returned an average of 13.20%.
VC firms have time to avoid risky bets in the crypto industry.
This allows venture capitalists to stay on the side of Bitcoin and Ethereum instead of taking more early-stage risks on Web3 startups as they do in other industries, Cochrane explained.
“Typically, many VCs in an industry get early captures because the idle profits that BTC/ETH provides are not available in those markets,” Cochrane explained.
In the past crypto cycle (2020 – 2024), VC firms “seemed to be proactive in investing in early-release apps” as they hoped to “make up for late-coming multiples with consumers,” he noted.
“Also, we have burned the last few narrative trends (NFTS, AMM forks, defi, L2s) and it is not clear what will happen next,” he said.
“While every VC firm positions itself as a supporter of innovation and in the pits associated with builders, most don't chase moonshots, but throw capital at disruptive trends.”
Crypto venture capital funding has surpassed $1 billion in three separate months — March ($1.09 billion), April ($1.04 billion) and July ($1.01 billion), according to RootData.
This is a significant increase from the previous year when it reached the same level in November 2023 ($1.29 billion).
However, the first four months of 2022 are still significantly lower than two years ago, when each saw more than $4 billion in monthly crypto venture capital funding.
Related: Here are the 6 biggest crypto VC deals in Q1 2024 and end of 2023
“Most crypto VCs are tech VCs who call themselves crypto VCs because they can raise a lot of money that way. But they don't find the differences and honestly don't add enough value to get in at the beginning of things,” Binney said on August 9.
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