Venture capitalists (VCs) in the cryptocurrency space are taking a more conservative approach, focusing on established assets like Bitcoin and Ethereum instead of riskier early-stage ventures.
This shift in strategy is driven by the desire for a more favorable risk-reward profile. Partner at Cinneamhain Ventures, Adam Cochran, explains that established cryptocurrencies like Bitcoin offer returns that outperform traditional investments with less risk compared to unproven startups.
Limited Partners (LPs), who provide capital for venture firms, often prioritize stable returns that exceed those of traditional options like index funds. Bitcoin’s impressive historical performance, with an average annual return of 60% over the past decade compared to the S&P 500’s 13.20%, makes it an attractive option for VCs seeking to meet LP expectations.
During the previous crypto boom (2020-2024), VCs primarily invested in established projects, minimizing risk by capitalizing on existing trends. The recent slowdown in areas like NFTs and DeFi has further fueled uncertainty about future breakout opportunities in the crypto space.
Despite the shift towards safer bets, venture capital funding in crypto remains significant.
While lower than the peaks of early 2022 (over $4 billion raised monthly), 2024 has seen several months with over $1 billion in funding.
This highlights a more cautious approach by VCs, prioritizing the stability of established crypto assets in a period of market uncertainty.