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No surprise, two years ago our purchase of BTC was called 'Bitcoin Idiocy,' and now BTC is close to 100,000—nothing can be more powerful than that.
📍 This article will unfold in four parts:
1) Direction of Capital Markets
2) Challenges of Fundraising in Cryptocurrency
3) Resistance Facing Cryptocurrency Now
4) Changes in Regulation
1) Direction of Capital Markets 🔻
The overall direction of the capital markets is clearly inflows, but this will take time. Assuming most institutional investors read (The New York Times) instead of paying attention to the prediction market Polymarket, where they previously believed the probability of Trump winning was around 50% and allocated their portfolios accordingly, now that the election results are out, they will miss this wave of crypto momentum.
If we assume people will rationally handle their largest positions first, there is still much work to be done in reallocating fixed income, energy stocks, any ESG-related investments, etc. Opportunities like cryptocurrency or the 1-3% crypto exposure you already hold are not the first things to consider in the first quarter.
Therefore, I am very optimistic about the market, but I believe the road to growth will be bumpy; there may be a pullback at the end of the year or the first quarter, and perhaps some tax-related sell-offs. But like the train station in Yellowstone Park, this thing only has one direction.
2) Challenges of Fundraising in Cryptocurrency 🔻
Before the elections, faced with differing attitudes towards cryptocurrency from both candidates, most crypto funds found the fundraising market very difficult, facing major challenges:
—— Venture Capital Resistance (mainly referring to the lack of capital allocation): LPs (limited partners, i.e., fund contributors) need to obtain returns from their existing ventures before continuing to invest in new venture projects.
—— Cryptocurrency Headwinds (Concerns about Market Structure): In the past two years, few new limited partners (LPs, typically referring to institutional investors) have started paying attention to cryptocurrency.
—— The New Shiny Thing (AI): The emergence of artificial intelligence has attracted a lot of investment, diverting funds from the crypto market. Most LPs categorize cryptocurrency investments as venture capital. To invest in new venture projects, they need to obtain returns from existing ventures.
In 21/22, this was not an issue, as numerous IPOs brought substantial returns to LPs.
However, now, liquidity in venture capital is definitely an issue, as the IPO and M&A markets are performing poorly, and the overall performance of venture capital is also weak.
As a result, many LPs are cutting new venture commitments. Most LPs started investing in crypto funds in 2021, and these funds have yet to deliver returns.
Personally, I do not believe this is a structural issue; given the current lock-up period structure, it is merely an early stage, but many LPs so far have received zero returns from crypto venture capital.
Of course, this is not universally true; some LPs do not classify cryptocurrency investments as venture capital. Some LPs choose to invest in liquidity funds (which I think is beneficial for the crypto sector). But for a large portion of investors, these are real structural resistances (the inflow of 100,000 bitcoins helps but does not fundamentally resolve the issue).
3) Resistance Facing Cryptocurrency Now 🔻
—— Lack of Overall Narrative: Cryptocurrency lacks a clear and understandable story or vision that can attract public attention.
—— Concerns about Token Market Structure: There are doubts about mechanisms like token issuance and trading.
It is worth noting that most of these issues are subjective views rather than structural flaws.
If Bitcoin reaches $100,000, it can absolutely overshadow any concerns people have about the cryptocurrency sector. Imagine if you heard people next to you on the golf course bragging about how much their cryptocurrency portfolios earned; you would want to join in, right?
But in my experience, most limited partners are not paying attention to cryptocurrency.
While the 'fear of missing out' (FOMO) sentiment is real, many institutional investors need to go through processes like committee approvals, so FOMO sentiment translating into actual investment decisions takes at least 1-2 quarters.
Regarding limited partners' lack of attention to cryptocurrency, part of the reason is that AI has attracted the attention of many institutional investors. Many were previously skeptical about cryptocurrency use cases, but once they used ChatGPT, they realized that AI would change everything.
I believe that discussing cryptocurrency use cases now is somewhat outdated. The bubble in the AI field is evident, and this bubble will destroy many venture capital funds. But everything is changing rapidly; in just a few weeks, we have witnessed the most favorable policy shifts for cryptocurrency and the impending $100,000 BTC.
4) Changes in Regulation 🔻
Over the past decade, regulatory uncertainty has been the simplest excuse for avoiding the crypto industry, but this excuse will be difficult to sustain in the future, leading to many downstream impacts, better token designs, more institutional adoption, and more founders joining.
Like all technologies, artificial intelligence will also go through a valley of disappointment. When the venture capital market in the field of artificial intelligence adjusts, the engineers with options in unprofitable AI companies valued at $2 billion will reassess their situation.
They will find that the water is warm here, and we have better memes. I have already seen the fundraising market starting to open its doors to cryptocurrency.
However, once all peers are discussing something, you cannot ignore it. The cryptocurrency market is very reflexive.
Price increases attract more attention, price increases lead existing crypto venture capital funds to allocate more funds, and price increases prompt more founders to enter the field. Often, when prices are high, the classic voice opposing investment is: 'You missed the opportunity.'
If we do not support very ambitious crypto companies and tell engaging stories about these use cases, this fear will prevent some capital from flowing in. I do not know when the floodgates will open—whether in the second, third, or fourth quarter—but at this point, it no longer matters. The macro backdrop is finally in place.
🚀 Let's do it!
🔹 Original article link: https://x.com/reganbozman/status/1860008356234362922
