Cryptos crumble but VCs remain gung-ho on future prospects

According to a report compiled by financial services and investment management firm Galaxy Digital, Venture Capitalists (VCs) have invested over $10 billion in crypto startups in the first quarter of this year.

Just earlier this week, VC giant Andreessen Horowitz announced the close of a $4.5bn crypto fund that focuses on Web3 startups.

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Also, a group of former executives from Binance, one of the largest global cryptocurrency exchanges, announced a $100-million venture fund called Old Fashion Research earlier this week, to bring greater crypto adoption to growing markets like Latin America and Africa.

Singapore-based VC firm NGC Ventures also launched a $100-million fund dedicated to high potential Web3 projects and metaverse economies.

Experts say VCs bet on blockchain tech

According to experts, blockchain and not crypto, is the underlying reason for these investments, with crypto being one of the use cases of the blockchain. The possibilities of new use cases, Web 3.0, and accelerated adoption of blockchain technology - all add to the uptick in investments with scale, growth, and returns all on the horizon.

Roderik van der Graaf, Founder of Lemniscap, says the high degree of market volatility that crypto markets are currently experiencing can elicit fear among some investor categories and undercut overall ecosystem sentiment in the short run. However, VCs generally view the market landscape with a wider aperture and execute a consistent, measured approach to building their portfolios. Usually, a foundational market thesis guides their investment rationale.

van der Graaf, the founder of the investment firm specializing in crypto and blockchain technology, added that market downturns do not undermine this thesis in the short term, and in fact, can actually serve as a long-term cleansing force, recalibrating the market equation with fundamentals rather than unfounded collective psychology.

Some of the best projects will emerge during these testing times, and Lemniscap will continue to back high-potential startups as they evolve into high-performance protocols and platforms, said van der Graaf.

Jenny Zheng, Business Development Lead for Bybit NFT Marketplace and co-founder of Blockcast Ventures, said VCs invest more during a down market and grow them in the bull market because in an upward market everything is overpriced, especially, in the crypto world.

“When it goes up, it is like 100 times, when it goes down, it could be down by 99 percent, so the entry point is much more important compared to the traditional finance world,” he says.

Zheng further says that in crypto, there are always new things coming out, from ICO IEO IDO INO to Gamefi, Defi, and NFT. “Following the new trends and getting involved at an early stage is the key. VCs are following the trends too. Defi, Gamefi, and NFTs are the top choices and they are here to stay for many years to come,” according to him.

Sam Kim, CEO of Sukuma Ventures and founder of Gochapaa, a crypto wallet based in Kenya, says the main reason for VCs pouring investments into blockchain companies is because of investors’ enthusiasm to search and deploy fresh capital into innovative technologies and frontier markets where the innovation adoption is still at its infant stage.

“Despite the growing concerns in capital markets from the hawkish sentiment of the US Fed and ongoing conflict in Ukraine, the search for growth is never-ending,” Kim says.

Anndy Lian, Chief Digital Advisor to Mongolian Productivity Organisation, says other asset classes are also not doing well and some of them might take a much longer time for recovery. Crypto, on the other hand, has been proven to recover relatively faster.

“Secondly, blockchain and crypto are still the talking points in the tech industry. The future growth is very promising. I see with my own eyes that traditional fintech companies are rebranding themselves into crypto, jumping onto the bandwagon,” he says.

Lian says the number of projects will surely increase given the huge influx of new money with NFTs and Game-fi continuing to be their favorite options.

"We are not only talking about investors putting their money into companies in the big old economies. Investors are heavily pouring into Cambodia and Kenya too for instance. We are seeing good innovation at work in the crypto space," Lian says.

Raj Kapoor, the chief advisor of crypto advisory firm Acryptoverse, says those enjoying the party are blockchain technology upstarts, trading platforms, Web3, and even the metaverse.

“Founders are now in a position to pick and choose investors because so much capital is looking to invest in these companies. As a result, founders can take advantage of investors that offer more than just money,” Kapoor says.

Jawad Nayyar, co-founder of Pakistani fintech firm PropTech, says over the last five years, NFTs and cryptocurrencies have gone from a Ponzi scheme to a gambling tool and a highly volatile asset to now finally being recognized as a legitimate virtual assets of value.

“In times of monetary expansion, high inflation, and a huge currency devaluation, the private sector now considers cryptos as a hedge against such economic adversaries,” Nayyar says.

As seen in the early stages of Web3, not all experiences make sense or will work with brand longevity, said Michael Gaizutis, founder and CXO of design agency RNO1. However, by taking that next step and investing in great design partners, investors will feel more confident and users will feel more central to the concepts they take part in, he added.