The crypto market is naturally filtering and evolving

Author: Will Wang, Generative Ventures, Source: Author’s Twitter @willwangtf

After fifteen years of development, the crypto market has shown some things that we may not feel at ordinary times, but it is true:

a. 70% of Bitcoin holders do not trade within a year

b. 88% of the market value is given to assets with clear consensus

c. 4 industry cycles predictable based on MVRV

d. 15 The unremitting investment in infrastructure over the years means: 1. The market actually has a large number of long-term holders 2. The market does not actually weigh the long-tail garbage for a long time 3. Market fluctuations may be predictable in the long term 4. The market has the patience to continue to support infrastructure investment Of course: This market is bound to be imperfect, and may even be full of flaws and the same tricks that Wall Street has been playing for a hundred years and the A-shares are playing now, but in any case, the market is effective.

1. The market is embracing the participation of traditional finance

2. The market is rebalancing the excess returns of VC

3. The market is firm in pricing mainstream assets

Therefore:

The market is also forcing VCs to be more long-term (from 2 years to 5 years and above) and selective (not investing in more than 100 projects, but focusing on supporting individual projects), otherwise VCs cannot deliver stronger performance than BTC.

In this article, I talk about a direction in which I think the market will gradually evolve:

Due to the lack of effective corporate governance measures and legal constraints, and the fact that the startup costs of entrepreneurs are almost zero, as long as there is a little VC investment and a certain scale, there will be a certain amount of personal wealth. This scale is by no means as large as VCs expect, nor is it what ordinary investors expect founders to fight for, because a market value of tens of millions or hundreds of millions of dollars can allow founders to find opportunities to cash out and become billionaires. (This applies not only to crypto startups, but also to the AI ​​craze a while ago)

Plus, most of them have no fundamentals, or have certain fundamentals but receive limited rewards, which further negatively incentivizes the logic of focusing on fundamental creation

So the result of natural selection is that there are two very extreme founder spectra in this field. One is the 1% long-termists and the 99% short-termists.

In the past, VCs could conspire with 99% short-termists to list coins, unlock them, and sell them to retail investors together, but the market has rebalanced to a longer lock-up period, and retail investors have also learned their lesson and no longer accept VC's game. This has obviously changed.

There are four types of founders in the crypto market that will not become obvious opponents of investors (retail investors and VCs):

1. The person is no longer with us, such as Satoshi Nakamoto

2. The actual shares are relatively small, such as the founder of Ethereum

3. The project is supported by business models without selling

4. The project does not make money by draining the market value, and has financial resources

The above statement is too straightforward, but there are very few projects that meet these conditions. However, this is why the market only weighs these four types of projects in the long run. You will find it if you calculate carefully.

Of course, VCs cannot only look at the problem from such a stock perspective, but should also look for innovation for the industry from an incremental perspective. Therefore, VC has only one way to go, which is to be bound to the 1% of long-termists (binding means that not only VCs rely on founders for the long term, but founders also have to rely on VCs for the long term)! Moreover, it is likely that they are forced to make long-term investments because they want to achieve some kind of innovative ambition (only greater ambitions can resist the second-greed greed, or ambition is also a kind of greed, but it is bound to making things bigger). Long-termists are particularly difficult to identify and screen. You can't just listen to their words, and you can only rely on paranoia and weirdness to screen out ambitious ideals. Any textbook-like shining background or a project done by a decent Internet executive may not be able to resist the temptation mentioned at the beginning in the end.

I wrote this note because I was inspired by the effectiveness of the crypto market and sincerely respected the market. Therefore, although everyone is saying that the current VC level 1 VC is a hell-level model, if you look at it separately, the market itself is forcing the birth of long-term investment, and the market has been like this since the beginning. Time is always the enemy of IRR. VCs don’t need to brag about their long-term, but time is also a friend of compound interest. So only when we find compound interest (almost always from barriers, including scale effects, network effects, intangible assets, and switching costs), then time is a friend of VC. We believe in this and are very pleased that we don’t need to invest in too many projects. We only need to support the most ambitious ones. The market will weigh their weight.