Originally published on: August 10, 2024
The cryptocurrency market’s stellar returns from Bitcoin and Ether are causing venture capitalists to pause their investments for a unique reason, according to industry experts.
Adam Cochran, a partner at Cinneamhain Ventures, shared insights on why VC firms are slowing down their crypto investments. Typically, venture capital firms have limited partners (LPs) who aim to outperform index fund returns. With Bitcoin and Ether providing substantial returns, the risk-reward ratio for these digital assets is more attractive than traditional investment options.
In the past decade, Bitcoin has averaged an annual return of 60%, outperforming the S&P 500 index’s 13.20% return. This has led VC firms to focus on holding Bitcoin and Ether rather than taking risks on early-stage Web3 startups, as they would in other industries.
Cochran noted that during the previous crypto cycle, VC firms appeared active by investing in established applications hoping for significant returns. However, he expressed uncertainty about future trends in the industry, as recent narrative trends like NFTs, AMM forks, DeFi, and L2s have plateaued.
While crypto venture capital funding reached over $1 billion in multiple months in 2024, reflecting significant growth compared to the previous year, it remains lower than the peak of 2022. This evolving landscape presents challenges for VCs looking to identify the next big opportunity in the crypto space.
Commentators like Beanie have also criticized some crypto VCs for lacking expertise and failing to add value to early-stage projects, highlighting the complexities of the industry.
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