Which CRYPTOS Are VCs BUYING?! Here’s All You Need To Know!

Summary

The video script discusses the resurgence of venture capital investment in the crypto industry after a prolonged 'crypto winter.' It highlights a 40% increase in Q1 2024, yet notes historically low levels compared to 2022's peak. The script explores possible reasons for the slow recovery, macroeconomic impacts, and the potential consequences of overfunding. It also breaks down investment trends by category and stage, suggesting a focus on early-stage projects and infrastructure, while cautioning about market saturation and the importance of thorough research for investors.

Takeaways

• 📈 Crypto VC investments are showing signs of recovery, with a 45% increase in the number of deals and over 40% increase in capital invested in Q1 2024 compared to the previous quarter.
• 💰 Despite the uptick, VC investment in crypto is still significantly lower than its peak in Q1 2022, with Q1 2024 investments at $2.4 billion, which is 80% down from two years prior.
• 🚀 The correlation between BTC's price action and VC investment has historically been observed with a lag of about one quarter, suggesting potential for increased investment following BTC's rally.
• 🕊️ The macroeconomic context, particularly interest rates, plays a significant role in the ability and appetite of institutions to make risky investments, including in crypto.
• 💡 The fintech sector, similar to crypto, experienced a significant downturn in investment after peaking in 2021, indicating a broader macroeconomic trend.
• 🔥 Overfunding in the previous bull market led to issues such as high valuations and unrealistic expectations, with examples like Yuga Labs and the NFT market showing the consequences.
• 🌐 The current fundraising environment in crypto is competitive, with some funding rounds oversubscribed and valuations rising significantly, which may lead to future challenges.
• 🎯 Early-stage projects received the majority of VC investments in Q1 2024, indicating a focus on new ideas and startups with minimum viable products.
• 💼 Later-stage projects aiming to upscale operations received less investment, possibly due to the exit of large generalist VC firms from the crypto market since 2022.
• 🎲 The categories that attracted the most VC investment were infrastructure, web3, NFT, metaverse, gaming, and trading, exchanges, investing, and lending.
• 🤔 The current market saturation and fragmented liquidity mean that as more projects launch, investors will need to conduct even more thorough research to identify potential successes.

Q & A

What is the general sentiment of the video regarding the end of the crypto winter?

The video suggests that while some believe the crypto winter is over, venture capitalists (VCs) might not have received the memo as their investment in crypto has been falling for almost two years straight until recently.

How does the video describe the relationship between VC investment in crypto and the price action of Bitcoin (BTC)?

The video states that historically, VC investment in crypto has followed the price action of BTC with a lag of about one quarter, meaning that investment trends tend to react to past price movements rather than anticipate them.

What was the record amount of VC investment in the first quarter of 2022, and what was the likely cause?

In the first quarter of 2022, VCs invested a record $12.2 billion into crypto, likely as a reaction to the euphoria of the 2021 bull run when BTC's price surged from sub-$30k to over $69k.

What major events in 2022 negatively impacted the crypto industry and VC investment?

The video mentions a flock of black swans in 2022, including the collapses of 3AC, TerraLuna, Celsius, Alameda, and FTX, which led to a significant downturn in the crypto industry and a decrease in VC investment.

How did the performance of Bitcoin in 2023 compare to the previous year, and what was the impact on VC investment?

In 2023, Bitcoin started the year around $16k and finished around $44k, marking a 160% rally. However, VC investment continued to fall throughout the year, only finding a bottom in Q4, despite Bitcoin's strong performance.

What was the first increase in crypto VC deals and capital invested since the start of 2022, and what did it signify?

In the first three months of 2024, the number of crypto VC deals increased by about 45%, and the amount of capital invested was up by more than 40% quarter on quarter, marking the first increase since the start of 2022, indicating a potential resurgence in VC interest.

How does the video suggest the current state of VC investment in crypto compared to its peak in 2022?

The video indicates that despite an uptick in the first quarter of 2024, VC investment in crypto is still at historically low levels, with Q1 2024 investments at $2.4 billion, which is 80% down from Q1 2022.

What macroeconomic factors might be influencing the current state of VC investment in crypto?

The video suggests that macroeconomic factors, such as interest rates, significantly influence the ability and appetite of institutions to make risky investments, which could explain the current state of VC investment in crypto.

What is the video's perspective on the potential overfunding and saturation in the VC market for crypto projects?

The video expresses concern that the current fundraising environment, with VCs competing to invest in projects before thorough due diligence, could lead to overfunding and saturation, which may cause problems down the line.

How does the video analyze the distribution of VC investment across different categories of crypto projects in Q1 2024?

The video refers to a chart that shows just four categories—infrastructure, web3/metaverse/gaming, trading/exchanges/lending, and payments/rewards—accounted for around 70% of all capital invested in Q1 2024, indicating a concentration of investment in specific areas.

What does the video suggest about the stage of investment projects that VCs are focusing on currently?

The video suggests that VCs are heavily leaning into early-stage projects, which accounted for the majority of deals and capital invested in Q1 2024, indicating a focus on fresh ideas and startups with a minimum viable product.