Research Summary
The report explores the correlation between Bitcoin price and fundraising in the crypto market, the role of venture capitalists (VCs) in the crypto space, and the current state of the DeFi sector. It includes insights from crypto VCs, DeFi project founders, and an anonymous angel investor, discussing the current bearish sentiment in the market, the decrease in fundraising, and the potential opportunities for investors.
Key Takeaways
Correlation Between Bitcoin Price and Fundraising
- Direct Relationship: The report highlights a direct correlation between Bitcoin price and fundraising in the crypto market. As Bitcoin’s price dropped, fundraising amounts also decreased, despite Bitcoin and Ethereum prices being higher than during the peak of the 2018 bull market.
- VCs Following Market Trends: The report questions why VCs, often perceived as market leaders, seem to be following the general market trend rather than setting it. It suggests that VCs might be aware of certain market dynamics that retail investors are not privy to.
Current State of the DeFi Sector
- Decrease in Fundraising: The report notes a significant decrease in fundraising in the DeFi sector, with the average sum raised per round decreasing by over 55%. Despite this, exchanges are dominating in DeFi for fundraising, accounting for 38% of all funding in Q3 2023.
- Impact of Bear Market: Despite the bear market, some protocols have successfully raised significant funds, indicating that investors have not completely abandoned crypto and DeFi. However, the general sentiment in the crypto VC space remains bearish.
Role of VCs in the Crypto Space
- Importance of VCs: The report suggests that VCs play an important role in the crypto space, providing initial capital injection, mentorship, networking opportunities, and credibility to projects. However, it also acknowledges the mistrust and negative sentiment towards crypto VCs, particularly due to concerns about dumping on retail investors.
- VC Investment Strategies: The report reveals that not all VCs follow market trends. Some, particularly Asian VCs, become more active during bear cycles due to the opportunities available. However, the timing of investments and token lock-ups can complicate cashing out strategies.
Lessons from VCs
- Advice from VCs: The report shares advice from VCs, including the importance of diversification, asking the right questions, doing thorough research, and understanding the real user metrics and legitimacy of founders. It also emphasizes the importance of continuous learning due to the fast-paced nature of DeFi.
Actionable Insights
- Investigate the Potential of Bear Markets: Despite the bearish sentiment, bear markets may present good opportunities for investment due to lower valuations. Investors can take their time to conduct due diligence on each project.
- Focus on Real User Metrics and Legitimate Founders: When considering an investment, it’s crucial to scrutinize real user metrics and the legitimacy of the founders. This can help identify potential red flags and ensure a more informed investment decision.
- Emphasize Continuous Learning: Given the fast-paced nature of DeFi, continuous learning is essential. Staying updated on the latest trends and developments can provide a competitive edge and help identify potential investment opportunities.
