Author:Regan Bozman
Compiled by: TechFlow
In the past few days, I have communicated with some family offices, endowments, and capital allocators who are interested in cryptocurrencies.
The market sentiment is very positive! The price of BTC is approaching $100,000, while we have been questioned for the past two years.
Here are some of my observations and thoughts on the gradual opening of the private market:
Although the trend of capital inflows is already very clear, the entire process still requires time.
Assuming that most institutional capital decision-makers are accustomed to reading The New York Times (NYT) rather than focusing on Polymarket.
They had previously set the probability of Trump's victory at around 50% and adjusted their investment portfolios accordingly.
If we assume that investors will prioritize dealing with the core assets in their investment portfolios, they still have a lot of work to do, such as adjusting fixed income, energy stocks, and ESG-related allocations.
As for opportunistic assets like cryptocurrencies, or a 1-3% cryptocurrency exposure in an existing portfolio, this is currently not a priority for the first quarter.
Therefore, I am optimistic about the long-term trend of the market, but there may be volatility in the short term, with a possible correction by the end of the year or the first quarter, which may even be accompanied by some tax-related sell-offs.
However, just like the train station scene in the Yellowstone series, the direction of this train is irreversible.
Before the election, the fundraising environment for most cryptocurrency funds was extremely difficult. The main reasons include:
Challenges in the venture capital field (mainly manifested in the lack of dividend returns)
Bottlenecks in the cryptocurrency industry (lack of attractive stories, low market interest, and concerns about market structure)
Diversion of attention to emerging hot spots (such as the rise of generative AI)
Most limited partners (LPs) categorize cryptocurrency investments as venture capital. To fulfill new venture capital commitments, they need to receive dividends from their existing venture capital investments.
In 2021 and 2022, this was not a problem, as a large number of IPOs brought LPs generous returns.
However, the liquidity problem in the venture capital field is now very prominent. The IPO and M&A markets are performing poorly, and the overall returns of venture capital are poor, causing many LPs to start reducing new venture capital commitments.
Most LPs only started investing in cryptocurrency funds in 2021, and these funds have not yet generated any cash dividends.
In my view, this is not a fundamental structural problem - the current lock-up mechanism is simply because the time is still early - but nevertheless, many LPs have not yet received returns from cryptocurrency venture capital.
Of course, this is not a universal phenomenon - some LPs have not included cryptocurrencies in their venture capital investment portfolios.
There are also some LPs who prefer more liquid funds (which I think is a good thing for the industry's development).
However, for most capital allocators, these are still obvious structural challenges (although the BTC price reaching $100,000 may help, but it is not enough to solve the problem completely).
In addition to this, the cryptocurrency field also faces some specific resistance:
Lack of a clear and unified narrative
Overall low market interest (there have been almost no new LPs starting to focus on cryptocurrencies in the past two years)
Concerns about the market structure of Tokens
These issues are more subjective than fundamental structural problems.
Of course, the BTC price reaching $100,000 can certainly alleviate people's doubts about this field to a certain extent.
Imagine if you were on a golf course and heard someone bragging about their big gains from their cryptocurrency portfolio, you would also feel the urge to participate.
But based on my experience, most LPs are not currently truly focused on the cryptocurrency field.
Although "fear of missing out" (FOMO) is a real psychological phenomenon, since many capital allocators need to go through complex decision-making processes such as committees, it usually takes at least 1-2 quarters from the emergence of FOMO to the actual investment decision.
As for the reason why LPs are not enthusiastic about cryptocurrencies, one important factor is that AI has attracted too much attention from capital allocators.
Many people still have doubts about the actual application scenarios of cryptocurrencies, but when you personally experience ChatGPT, you will realize the huge potential of AI, which can almost change everything.
I think discussing the actual application scenarios of cryptocurrencies has become somewhat outdated now.
AI is clearly in a bubble stage, and this bubble may severely damage many venture capital funds.
But I can understand - the experience of ChatGPT is very intuitive and clear, while the concept of cryptocurrencies seems more abstract. And the theoretical addressable market (TAM) of AI is almost boundless, which naturally makes people full of expectations.
However, these are just current concerns - things may change faster than we imagine. In the coming weeks, we may witness two major events: one is the most favorable political environment in the history of the industry, and the other is the breakthrough of the BTC price to $100,000.
This will completely change the rules of the game.
Over the past decade, regulatory uncertainty has been the most common reason for people to deny the cryptocurrency industry, and in the future, this "excuse" will be difficult to use again.
This transformation will bring many positive chain reactions - more optimized Token design, broader institutional participation, and more entrepreneurs joining the field.
Like all technologies, AI will inevitably enter a trough of disillusionment. The engineers working at AI startups with valuations as high as $2 billion but not yet profitable may reconsider their choices after the adjustment of the AI venture capital market.
They will find that the opportunities in the cryptocurrency field are broader, and the industry also has a more interesting cultural atmosphere.
In fact, I have noticed that the financing market for cryptocurrencies is gradually warming up.
Capital allocators are often inherently conservative, and no one will be fired for giving money to traditional funds like Bridgewater that charge 2/20 (2% management fee and 20% performance fee).
But when your peers are all talking about something, it becomes almost impossible to ignore it. Cryptocurrencies have a very strong reflexive effect:
Price increases will attract more attention;
Price increases will allow existing cryptocurrency venture capital funds to achieve more dividends;
Price increases will also attract more entrepreneurs to join this field.
Of course, we still have a lot of work to do - a classic counterargument is: "When the price is high, you have already missed the opportunity."
If we don't support those ambitious cryptocurrency companies and tell the stories of these technological use cases, this concern may hinder the inflow of some capital.
As for when the full-scale market explosion will come, whether in the second quarter, third quarter, or fourth quarter, I think it no longer matters. Because the macro environment is finally in place.
Let's go all out and make a big push!
