Author: Regan Bozman
Translation: Shenchao TechFlow
In the past few days, I have communicated with several family offices, endowment funds, and capital allocators interested in cryptocurrencies.
Market sentiment is very positive! Bitcoin (BTC) price is close to $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 private markets:
Although the trend of capital inflow is very clear, the entire process still takes time.
Assuming that most decision-makers in institutional capital are accustomed to reading The New York Times (NYT) rather than paying attention to Polymarket.
They had pegged Trump’s probability of winning at around 50% and adjusted their portfolios accordingly.
If we assume that investors will prioritize core assets in their portfolios, then they 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 the 1-3% cryptocurrency exposure in existing portfolios, it is currently not a priority for the first quarter.
Therefore, I am optimistic about the long-term trend of the market, but it may experience volatility in the short term, with a possible correction by the end of the year or the first quarter, possibly accompanied by some tax-related sell-offs.
However, just like the train station scene in Yellowstone, the direction of this train is irreversible.
Before the election, the fundraising environment for most cryptocurrency funds was very difficult. The main reasons include:
Challenges in the venture capital space (mainly reflected in the lack of dividend returns)
Bottlenecks in the cryptocurrency industry (lack of compelling stories, low market interest, and concerns about market structure)
Diversion in emerging hot areas (such as the rise of generative AI)
Most limited partners (LPs) categorize cryptocurrency investments under venture capital. And to fulfill new venture commitments, they need to receive dividends from existing venture investments.
In 2021 and 2022, this was not an issue, as a large number of IPOs brought substantial returns to LPs.
However, currently, the liquidity issues in the venture capital space are quite prominent. The IPO and M&A market is sluggish, combined with poor overall returns from venture capital, leading many LPs to start reducing new venture commitments.
Most LPs only started investing in cryptocurrency funds in 2021, and these funds have yet to yield any cash dividends.
In my view, this is not a fundamentally structural issue—the current lock-up mechanism is simply because it is too early—but nonetheless, many LPs (limited partners) have yet to receive returns from cryptocurrency ventures.
Of course, this situation is not universal—some LPs have not included cryptocurrencies in their venture capital portfolios.
Some LPs are more inclined to choose funds with higher liquidity (I think this is a good thing for the industry’s development).
However, for most capital allocators, these remain obvious structural challenges (although a Bitcoin price reaching $100,000 might help, it is not enough to completely solve the problem).
In addition, the cryptocurrency field faces some specific resistances:
Lack of a clear and unified narrative thread.
Overall market interest is low (almost no new LPs have started paying attention to cryptocurrencies in the past two years).
Concerns about the structure of the Token market.
These issues are more subjective rather than fundamentally structural.
Of course, a Bitcoin price reaching $100,000 can undoubtedly alleviate concerns about this field to some extent.
Imagine if you heard someone nearby on the golf course bragging about their profitable cryptocurrency portfolio, you would also feel the urge to participate.
But based on my experience, most LPs are not currently paying much attention to the cryptocurrency space.
While 'fear of missing out' (FOMO) is a real psychological phenomenon, many capital allocators need to go through complex decision-making processes like committees, so it usually takes at least 1-2 quarters from generating FOMO to actually making investment decisions.
As for the reason why LPs are not interested in cryptocurrencies, one important factor is that AI has attracted too much attention from capital allocators.
Many people still have doubts about the practical applications of cryptocurrencies, and once you have experienced ChatGPT yourself, you will realize how immense the potential of AI is, capable of changing almost everything.
I think discussing the practical applications of cryptocurrencies now seems a bit outdated.
AI is clearly in a bubble stage, and this bubble may severely impact many venture capital funds.
But I can understand—the experience with ChatGPT is very intuitive and straightforward, while the concept of cryptocurrency seems more abstract. Additionally, the total addressable market (TAM) for AI is almost boundless, which naturally generates anticipation.
However, these are just current concerns—the changes may happen faster than we think. In the coming weeks, we may simultaneously welcome two major events: the most favorable political environment in the industry's history and Bitcoin's price breaking $100,000.
This will completely change the game.
Over the past decade, regulatory uncertainty has been the most common reason for denying the cryptocurrency industry, and this 'excuse' will be difficult to use in the future.
This shift will bring many positive chain reactions—more optimized Token designs, broader institutional participation, and more entrepreneurs joining.
Like all technologies, AI will inevitably enter a valley of disillusionment. Engineers working at AI startups valued at $2 billion but not yet profitable may reconsider their choices after the adjustment in the AI venture capital market.
They will find that the opportunities in the cryptocurrency field are broader, and this industry 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; no one gets fired for giving money to a traditional fund like Bridgewater that charges 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 strong reflexive effect:
Price increases will attract more attention;
Price increases will allow existing cryptocurrency venture 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: 'Investing when prices are high means you have already missed the opportunity.'
If we do not support those ambitious cryptocurrency companies and tell the story of these technological use cases well, this concern may hinder some capital inflow.
As for when the comprehensive outbreak of the market will come in the second, third, or fourth quarter, I think it no longer matters. Because the macro environment is finally in place.
Let's give it our all and go for it!
