Bitcoin and Crypto Aren’t As Dead As You Think, Says Venture Capital Firm

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To hell with token prices, crypto is doing very well. Or so goes the story told by an investor with one of the biggest stakes in the industry.

That’s the main takeaway from a report published Tuesday by a16z crypto, an arm of prominent venture capital firm Andreessen Horowitz.

The VC firm has released a new Crypto Index Report that claims to track the progress of the crypto industry by aggregating metrics such as the number of active crypto wallets and the number of smart contracts in use. The idea, according to the firm, is that crypto token prices alone do not paint an accurate picture of the progress of decentralized finance.

For people who don’t follow what’s happening in crypto very closely, prices have remained volatile. It’s been that way since the beginning of crypto, says Eddy Lazzarin, CTO of a16z crypto. But if you look at the underlying technology, it has continued to advance.

It’s easy to see why a16z wants to reset the narrative.

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The last 12 months for the crypto industry have been marked by major bankruptcies, plummeting token prices, and the collapse of crypto exchange FTX amid fraud allegations. The price of Bitcoin, the largest token, has been rising lately, even surpassing $30,000, but it is still down more than 50% from its 2021 peak of over $65,000.

In a16zs’ story, the state of crypto isn’t nearly as dire. In March, the index had a reading of around 1,615, down from a peak of 2,159 in 2021, but still 25 times higher than the January 2020 reading, before the Covid-19 pandemic took hold.

The company itself has a lot at stake: a16z is one of the biggest investors in the crypto venture capital industry. Its portfolio includes Anchorage Digital, Avalanche, dYdX, Solana, and Uniswap, among dozens of others.

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Among the metrics that a16z says are already above the 2021 peak are the number of active wallets used to store crypto; the volume of stablecoin transactions, whose values ​​are most often pegged to the dollar; and the number of smart contracts, which are crypto contracts that automatically execute when certain conditions are met.

Lazzarin says that these and other metrics are a more appropriate measure of development in the ecosystem than token prices alone, and that they pave the way for the development of real-world use cases for crypto.

Bitcoin is mostly held by investors who hope its price will appreciate. But a16z argues that the crypto industry will have a much wider impact, describing it as an evolution of the internet and a new computing platform.

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Similar stories have been told by crypto proponents for years, but have yet to come to fruition. Even though the industry says it wants to eliminate financial intermediaries like banks and exchanges in favor of cheaper and decentralized alternatives, most analysis has shown that a small number of companies, including a16z, wield great power over industry. A US regulatory crackdown, which has limited options for crypto firms to obtain even basic banking services, is threatening crypto growth.

Perhaps the biggest short-term threat to many crypto projects is the lack of interest from venture capitalists themselves. Lazzarin says his company still sees opportunities in crypto and continues to invest, although he admitted things may have slowed down a bit.

A separate report by Galaxy Digital on Tuesday says venture capitalists invested $2.4 billion in crypto-focused startups and protocols in the first quarter, the lowest amount in more than two years. .

The era of growth at all costs is over, at least for now, and venture capital-backed start-ups must prepare for a challenging fundraising environment for the foreseeable future, according to the report, which notes that VCs have pulled out of other industries while Bien. The founder-friendly environment of recent years is in the rearview mirror.

Email Joe Light at [email protected]

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