Billions - The Daily Gwei #277

Fighting back bear markets one fund-raise at a time.

Yesterday, famed investment firm a16z announced that they are launching a new $2.2 billion crypto fund which is the third crypto-specific fund that they have launched so far. As stated below, this is also the “largest crypto fund ever” but they aren’t the only fund in town!

During the depths of the 2018 and 2019 bear market, capital was extremely scarce and teams had to resort to all kinds of things in order to raise money. Many teams were forced to give up large parts of their company’s equity to raise even just a little bit of money, other teams simply fell apart and there were many funds that ran out of capital and had to close up shop. Obviously many of the teams that were able to make it through the bear market (Maker, Aave, Uniswap and more) have gone on to become unicorns but this success was far from certain at the time.

This time around, if the market does go into another long-term bearish period, there is plenty of money (probably tens of billions) spread across many different funds for teams to get funding from. This is because most of these funds ended up closing new funding rounds recently and the capital that they have raised isn’t just going to sit in a bank account - it’s going to be deployed over the coming months in a big way across the ecosystem. Of course, not all of this capital will be deployed to just any one ecosystem (or any one asset) which makes it hard to rationalize about how much of that value will flow into large publicly traded assets such as ETH and BTC. Well, the way I look at it is that the Ethereum network is only as strong as its application ecosystem (which is what will be funded by these companies) and then that value inevitably flows to the Schelling point asset of the ecosystem which is ETH.

On top of the new raises that we’ll see in the coming months, plenty of teams have already raised money recently that gives them anywhere from 1 to 10 years runway (depending on how much they raised, of course). This means that these teams are going to be able to easily coast through any prolonged bearish periods in the market while building out their product and/or service and they’ll also be able to recruit a strong, dedicated group of community members as typically the people who stick around in a bear market are actually “in it for the tech”.

I’ve been saying it for a while and I believe that it still holds true to this day - the best products/services in crypto are built during bear markets. The perfect example of this is of course DeFi where the foundations for this amazing new financial system were laid during a time when there was probably less than a few thousand active Ethereum community members. So what can we expect to see if the market stays bearish over the next 6 to 12 months?

Something amazing, I’m sure of it.

Have a great weekend everyone,
Anthony Sassano

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All information presented above is for educational purposes only and should not be taken as investment advice.