Summary

At Breakpoint 2023, a panel of leading venture capitalists convened to explore the current state and future underpinnings of crypto venture capital from their vantage points. The discussion traversed through a period of market ambiguity—not quite bull, nor bear—and the emergence from what some might call a 'crypto winter.' The panelists included Praneeth Srikanti from Ethereal Ventures, Alexander Tkachenko from VNX, and Tushar Jain from Multicoin Capital, each providing insights into their focal points for investment, the paradigms of contributing and extracting value in the ecosystem, and the markers of successful entrepreneurship in a maturing space.

Key Points:

The Current State of Crypto VC

Venture capitalists are cautiously optimistic about the market as indicators such as Bitcoin reclaiming its 200-day average point to exiting a bear market. However, challenges persist, as the industry has not suffered from a lack of capital but rather a shortage of deals and entrepreneurs. VCs note the interplay between public market rallies and venture activities, suggesting that an uptick in the former can instill confidence in entrepreneurs to venture into starting new companies or seeking funding.

Venture Investment Strategies

As the crypto market matures, VCs are shifting their focus from quantitative measures, which may provide a false sense of security, to more qualitative assessments of potential investments. Investment firms are especially interested in startups that expand the ecosystem—those that create "net new" customers and liquidity rather than competing over the existing pie. They emphasize the importance of founders focusing on vision, product development, and team building, as these are core elements that drive successful ventures.

The Shift Toward Real-world Blockchain Applications

Institutional adoption and the integration of real-world assets with blockchain platforms represent exciting frontiers for VCs. With institutions earnestly looking into the blockchain, expectations are set for substantial results in coming years. Furthermore, applications are evolving to solve real-world problems, like tokenization of assets for liquidity or using blockchain for data verification and certification.

Future Directions for Blockchain and Crypto

Panelists expressed anticipation for the next bull cycle to be spurred by ways of bringing assets on-chain without purchasing, such as NFTs for tickets or earning tokens through participation. They argued that the future wave of blockchain adoption would likely involve seamless transitions into using on-chain services out of convenience rather than as an investment thesis. Keeping a close eye on innovative applications that go beyond incremental improvements is seen as key to driving the next growth phase in the crypto market.

Facts + Figures

• Bitcoin reclaimed its 200-day average, signaling a possible end of the bear market.
• Venture activity has been sluggish, not due to a lack of capital but because of a shortage of entrepreneurial ventures.
• Real-world asset (RWA) integration with blockchain is gaining interest but is still in early stages.
• Founders need to focus on building practical solutions that contribute to the ecosystem rather than compete within it.
• New investment strategies involve qualitative over quantitative analysis, prioritizing visionary entrepreneurs who build products that expand the market.
• Institutional adoption is on the rise, especially in Europe, under a regulatory framework like MICA.
• The concept of tokenizing crypto-native and real-world assets is seen as an important progression for blockchain technology.

Top quotes

• "The main benefit [of public market rallies] is coming from entrepreneurs feeling safer to go quit their jobs and found a company."
• "We're very much thesis-driven and know what you're looking for versus what's not."
• "I think the next bull cycle in crypto is going to be kicked off by people getting assets on chain without having to buy them."
• "Blockchain is about compressing margins."
• "The future wave of blockchain adoption would likely involve seamless transitions into using on-chain services out of convenience rather than as an investment thesis."

Questions Answered

What is the current state of crypto venture capital?

The current state of crypto venture capital is marked by cautious optimism. While indicators suggest movements out of a bear market, the venture landscape is still grappling with a scarcity of deals and entrepreneurs.

How are VC investment strategies evolving in the crypto space?

Venture capitalists are paying less attention to quantitative metrics like Total Value Locked or active addresses, shifting their focus towards qualitative measures. They prioritize visionary founders creating innovative products that have the potential to generate new demand and liquidity in the ecosystem.

Why is the integration of real-world assets with blockchain significant?

Integrating real-world assets on blockchain platforms is significant as it bridges the gap between traditional markets and crypto markets, offering opportunities to solve real-world problems, improve liquidity, and enhance asset utilization.

What might catalyze the next growth phase in the crypto market?

Venture capitalists believe that the next growth phase in the crypto market will be catalyzed by lowering the barriers to entry, particularly by enabling people to acquire on-chain assets organically without upfront purchase, possibly leading to wider adoption.

How does the concept of slicing vs. growing the pie apply in the crypto industry?

In the crypto industry, "slicing the pie" refers to companies that offer incremental improvements over existing services, competing for a share of the existing market. In contrast, "growing the pie" involves creating entirely new markets, demand, and increasing overall participation.