VC Firms are Reducing Crypto Investments: A Detailed Look

Adam Cochran has pointed out that investment in the cryptocurrency sector is declining as venture capitalists shift their focus from “moonshots” to more stable “breakout trends.”

The Current State of Crypto Investments

Cochran points out that the unique nature of the cryptocurrency market allows venture capitalists to bypass early-stage risks, something they cannot do in most other industries. This trend indicates a slowdown in crypto investments.

In a series of posts on X, Cochran elaborated that many venture capital firms have Limited Partners (LPs) who are keen on achieving better returns than index funds. He predicts that in the medium term, the risk-reward ratio of investing in Bitcoin (BTC) and Ethereum (ETH) will surpass that of index funds.

Performance Comparison

Data from Curve.eu reveals that Bitcoin has had an impressive average annual return of 60% over the past decade, while the S&P 500 has averaged only 13.20%.

VC Firms Hedging Against Risks

According to Cochran, this situation allows venture capitalists to maintain a distance from riskier bets in the crypto space. Instead of taking significant chances with early-stage Web3 startups, they can afford to invest in established firms.

Cochran explained that typically, in other sectors, there are more VCs willing to take early risks because the assured gains from Bitcoin and Ethereum are absent in those markets.

During the most recent crypto cycle from 2020 to 2024, VC firms appeared to be more engaged, primarily investing in successful applications aimed at capturing late-stage consumer interest.

Market Dynamics and Trends

Cochran noted that previous investment narratives (like NFTs, AMM forks, DeFi, and L2s) have become exhausted, leaving uncertainty about what the next trend will be. He asserted:

“While every VC firm brands themselves as pro-innovation and in the trenches with the builders, most of them don’t actually pursue moonshots; they just throw capital at breakout trends.”

Investment Statistics

Despite the slowdown, crypto venture capital funding in 2024 has seen significant monthly investments exceeding $1 billion, specifically in March ($1.09 billion), April ($1.04 billion), and July ($1.01 billion), as reported by RootData.

This figure showcases a marked increase compared to the previous year, where the funding level only reached the billion mark once in November 2023 ($1.29 billion). However, it is still significantly lower than the beginning of 2022, which saw over $4 billion in monthly funding during the initial months.

Cochran also remarked on the tendency of many crypto-focused VCs being essentially tech VCs that rebrand themselves to attract more investment, but without a deep understanding of the intricacies of the crypto market.