When the tide recedes, traditional VCs begin to enter Crypto

It is estimated that it will take another six months or a year to see a huge trend.

Even Jinshajiang Ventures is already learning about Crypto. 

Rhythm learned that recently, venture capital funds such as Jinshajiang Ventures, Lightspeed China, and Northern Light Ventures are all paying attention to the encrypted track. Domestic Internet VCs began to enter Crypto. 

As early as April of this year, Zhu Xiaohu, managing director of Jinshajiang Ventures, publicly stated that “(for) myself, I can buy a small portion of my assets in Bitcoin as an asset allocation.” He believes that “seeing the real application scenarios of digital currency has begun, such as DeFi (Decentralized Finance, decentralized finance) after the start of Ethereum-based lending, I believe that digital currency can still be expected.” 

It is also Zhu Xiaohu, who stated in Moments in 2018 that Jinshajiang and himself will not participate in any IC0 projects, and said that 99.99% of IC0 projects are malicious scams. 

As a “star investor” in the VC arena, Zhu Xiaohu has successfully captured high-growth Internet industry “unicorns” such as Ele.me, Xiaohongshu, and Inke, and is known for his unique vision and “little stones into gold”. From questioning IC0 to recognizing DeFi, his attitude towards the concept of innovation in the encryption industry may reflect the continuous maturity of the industry from the side and also vaguely reveal the trend of future technological innovation. 

If you think about the rapid offensive of the world’s top VCs in the crypto industry in recent years, it is not difficult to understand the attention of venture capital funds such as Jinshajiang. After all, among the world’s top venture capital companies, there are not a few that currently have a layout in the encryption industry. 

In June of this year, Silicon Valley legend VC Andreessen Horowitz (a16z), who invested in Facebook and Twitter, was revealed to be preparing a third crypto fund with a scale of more than 2.2 billion U.S. dollars; SoftBank, which captured Alibaba, Didi, and Keep, is also in the crypto industry. Invested in a Brazilian cryptocurrency fund company; IDG Capital, which has invested in more than 500 Internet companies such as 360, Baidu, Tencent, Meituan, and Pinduoduo, has never stopped its offensive in the crypto industry, such as Coinbase, imToken, Ripple, etc. Well-known crypto projects are all included in the bag… 

A more important milestone was the successful listing of Coinbase, a licensed cryptocurrency exchange in the United States, on Nasdaq in April this year, which allowed domestic investors who have been doubtful about the compliance of the crypto industry to see new possibilities. 

With the end of the era of barbaric growth of the consumer Internet, the demographic dividend that the domestic Internet industry relies on for development has gradually disappeared, the cost of acquiring customers has increased, traffic is no longer easy to obtain, the mobile Internet market is becoming saturated, and the Chinese Internet VCs who are used to the triumphant advance are now Had to look away. 

When the compliance channel is opened, Crypto is an attractive blue ocean that cannot be ignored. 

Large troops begin to enter the arena 

Changes always start quietly. Suddenly, senior currency investors began to be favored by Internet VCs. 

Niu Fengxuan, the founder of the decentralized Dapp data analysis platform DappReview acquired by Binance, the world’s largest cryptocurrency exchange, has confirmed to Ludong to leave Binance and join the venture capital fund Yunjiu Capital ( Sky9 Capital), became a partner of the fund’s Crypto track. Darong Cao, the founding partner of Yunjiu Capital, was the managing director of Lightspeed Venture Capital and the founder of China. It was him who first “Amway” Bitcoin to Binance founder and CEO Zhao Changpeng, and then he has the following story. 

Chen Yuetian, a subculture and two-dimensional investor who has successively captured star projects such as SNH48, Miwei Media, Renren Video, former Chenhai Capital partner, and the founder of Xianhuofeng Capital, has also begun to invest in encryption projects in the past six months. He told Ludong that many well-known Internet VCs are now watching the encrypted track. 

Ludong also learned that a domestic first-line RMB fund that has invested in Didi is considering setting up a dedicated Crypto fund. 

From the recently announced financing situation of the encryption industry, it can also be seen that the interest of domestic Internet VCs is increasing.

In March of this year, imToken, a decentralized encrypted wallet, announced the completion of a US$30 million Series B investment led by Qiming Venture Capital. Series A investors IDG Capital and new investors Breyer Capital, HashKey, Signum Capital, Longlink Investment, SNZ and Liang Xinjun, co-founder of Fosun Group, participated in the investment. 

In May of this year, the crypto financial institution PayPal Finance announced the completion of a US$40 million Series A financing, with the participation of top institutions such as Wanwu Capital (Boyu Capital’s early fund), Sequoia Capital China, BAI Capital, Tiger Global Fund, Dragonfly Capital and other top institutions. Among them, Wanwu Capital, BAI Capital, and Tiger Global Fund are all deploying crypto-asset financial services in Asia for the first time. Prior to this, PayPal Finance had completed two rounds of financing, with investors including Zhen Fund, Lightspeed China, Keyin Capital, and NGC.

On June 21, Amber Group, a global encrypted financial service provider, announced the completion of a US$100 million Series B financing, led by Huaxing Capital, Tiger Brokers, Tiger Global Fund, Arena Holdings, Tru Arrow Partners, Cloud Nine Capital, DCM Ventures and Gobi Partners And A round investors Pantera Capital, Coinbase Ventures and Blockchain.com participated in the investment. 

With the exception of Sequoia Capital China, Lightspeed China and other institutions that have been involved in the encryption track before, Rhythm has learned from various sources that Internet venture capital funds such as Source Code Capital, Ekai Capital, and Jingwei China have recently learned about Crypto, and revealed the field Out of interest and intentions, traditional VCs are indeed entering the encryption industry.

“However, most Internet VCs may still be at the stage of watching.” Chen Yuetian said. 

Although institutions are entering, the demand for relevant talents may not be huge. “Current Internet organizations are more inclined to learn slowly. Their pace is not radical. An organization will only recruit one or two VPs or even VPs and above, and they can hold the entire track.” Frank Li, Investment Partner of SNZ Say. 

In addition to looking at the project on their own, some Internet VCs have also chosen a more covert method-direct investment in blockchain capital. Earlier this year, Sequoia China announced that it has become a strategic partner of the Dragonfly Fund and completed its investment in the Dragonfly Fund. According to the official introduction, Dragonfly (Dragonfly Digital Capital) is a venture capital fund focusing on the blockchain industry. Based on VC’s long-term value investment strategy, it focuses on blockchain technology research and deploys the global blockchain ecosystem through investment in early projects. 

Feng Bo, the founder of Dragonfly Fund, is a legendary senior investor. He founded Lianchuang Ceyuan in 2005 and successively invested in a series of mobile Internet products such as Xunlei and PPStream. Then he founded Dragonfly Capital in the early stage of the blockchain industry. , Became a well-known blockchain venture capital fund in China, and gathered four members of Shen Nanpeng, global managing partner of Sequoia Capital, Vitalik Buterin, founder of Ethereum, Wang Xing, CEO of Meituan, and Zhang Tao, founder of Dianping. ” “Great God” and known as “the strongest player in the currency circle”, investment projects include 1inch, Compound, Cosmos, dydx, Near and other public chain and Defi projects that have been popular in recent years.

Coin World-When the tide goes away, traditional VCs begin to enter Crypto

The picture is from the Internet, taken at the 2019 Dragonfly Crypto Summit, from left to right: Shen Nanpeng, Feng Bo, V Shen, Wang Xing, Zhang Tao 

In the cooperation draft, Shen Nanpeng said, “Relying on the deep research and accumulation of the underlying technology of the blockchain, the Dragonfly team continues to explore the innovative layout of products and technologies, and effectively collaborates with resources to actively cultivate the entrepreneurial ecology in the field. It has won a good reputation in development.” 

In the case of multiple VCs operating at the same time, an encryption outlet may strike. However, the wind started at the end of Qingping. To trace the reason for the entry of Chinese Internet VCs into the Crypto movement, it is inseparable from another continent on the other side of the ocean. 

VC 也 FOMO? 

The full name of FOMO is Fear of Missing Out, which refers to the anxiety of always worrying about missing or losing something. It is also called “Fear of Missing Out.” 

In the investment world, FOMO sentiment is very common, and VC is no exception. 

In the past three years, when Chinese Internet VCs were still on the spot, “U.S. institutions such as a16z (Andreessen Horowitz) and USV (Union Square Ventures) have been investing in crypto projects very early, and have been investing in crypto projects for the past few years. VC has fallen behind, and now I can only catch up desperately.” Chen Yuetian said. 

Among the many VCs in the United States that pay attention to the encryption track, the most eye-catching star is a16z, the top institution in the Silicon Valley venture capital industry. Relying on its rampant style and sturdy capital power, it rapidly expanded its territory and captured a series of phenomenal companies including Facebook, Twitter, GitHub and Clubhouse. In the world of cryptocurrency, a16z is an early adventurer. This company has mounted a Bitcoin white paper on the wall of its Silicon Valley office and has been in the field of encryption for 7 years. It adheres to the investment philosophy of “long-term investment” and “all-weather investment”, betting on Coinbase, Uniswap, Solana, MakerDao, Dfinity, Chia, etc. The leading project in the encryption industry has become the unquestionable industry “vane”. 

Complementing the direction of capital, innovation projects in the foreign encryption industry have also made breakthroughs in the past few years. With the joint efforts of dozens of leading project developers around the world, the Defi (Decentralized Finance) in the summer of 2020 and the NFT (Non-fungible Token) wave at the end of 2020 have become the important “engines” of this round of cryptocurrency bull market. The innovative decentralization concept has revolutionized the financial industry and the entertainment and art industry, and has successfully attracted the attention of mainstream people at home and abroad. In contrast, there are still not too many outstanding domestic encryption projects in recent years. 

The constant sailing of venture capital funds in the United States is seen by peers all over the world, including China. 

In China, although Crypto has long been associated with negative labels such as pyramid schemes, money laundering, and fraud, it still cannot erase the fact that this industry belongs to cutting-edge technological innovation, and is surging with huge amounts of funds and huge profits. The reasons that prevented China’s Internet VCs from entering the game before were simple: compliance exit and industry expectations. 

Therefore, the successful listing of Coinbase in the United States has become a very important trigger. Although the current U.S. cryptocurrency exchange license is cumbersome, the U.S. exchange Coinbase, which has obtained the “Grand Slam” of the compliance license, is still listed. This means that the exchange does not only exist in the dark in the United States, as long as it fully embraces supervision, You can “stand in the sun.” This also provides a complete compliance path for other U.S. cryptocurrency exchanges. The future of U.S. cryptocurrency exchanges that embrace regulation such as Binance.us will have unlimited possibilities. 

“Coinbase allows traditional investors to see that crypto exchanges can also be listed on the Nasdaq very legally, which means that investors have a legal and compliant exit mechanism.” said Vanessa Cao, founder of BTX Capital. 

We must know that the exit mechanism, as an important part of venture capital, is the key to venture capital to generate profits in cycles. If this link is missing, the chain of venture capital will be interrupted, and investment appreciation and a virtuous circle will not be realized, and it will not be possible to attract more capital to join the ranks of venture capital. 

In the traditional stock market, there are four main channels for the exit of venture capital: initial public offering (IPO), equity transfer, equity repurchase, and bankruptcy liquidation. Previously, in the currency circle, investors’ exit mechanism was probably the only way to unlock the token sale, which would inevitably be suspected of cutting leeks. 

Even with the IPO exit mechanism, in the context of domestic policies, compliance is still an important factor considered by Internet VCs. “Currently, almost none of the domestic Internet VCs can invest in Crypto native (native blockchain) projects. Most of them are still looking at Internet service blockchain projects, such as Sequoia’s previous investment in PayPal Finance.” Niu Fengxuan told Rhythm, ” At present, most Internet VCs are still investing in equity.” 

“Fundamentals” are improving 

In addition to the changes in the compliance exit mechanism, another important reason why Internet VCs choose to enter the market is the changes in the “fundamental” of the encryption industry. 

When we look back at the driving force of the crypto bull market from 2020 to the present, apart from the strong support of cutting-edge capital and the continuous emergence of innovative projects, it is difficult to ignore the fact that Wall Street financial institutions such as Grayscale want to connect cryptocurrency and traditional equity markets. Efforts, and these innovative financial models are inseparable from the compliance environment provided by U.S. regulation. 

Currently, U.S. cryptocurrency trust products need to be approved by the SEC. GBTC and ETHE, which are under the umbrella of Grayscale, the cryptocurrency trust fund that has been on fire since last year, are all products reported to the SEC. 23 companies including Rothschild Investment Corp, an investment company under the well-known old money family Rothschild, and ARK Invest, founded by the female version of “Buffett” Catherine Wood, have held the gray-scale Bitcoin trust. 

Bitcoin and Ethereum’s ETF (Exchange Traded Funds) products also require compliance review. Bitcoin ETF allows traders to obtain Bitcoin trading channels through the traditional stock market, eliminating the need to buy and sell encrypted assets on cryptocurrency exchanges. It is worth mentioning that Canada has approved three Bitcoin ETFs this year. Among them, the first approved Bitcoin ETF had a trading volume of over 9.65 million on the day it went online, with a trading volume of US$165 million on the first day, which was much higher than the average trading volume of a newly listed ETF in Canada on the first day. 

In addition, Thomas Peterffy, CEO of Interactive Brokers, a world-renowned professional trading platform, also stated that because platform users have a strong demand for trading crypto assets, Interactive Brokers will launch crypto asset trading services before this summer. 

The continuous development of overseas cryptocurrency compliance business has also made domestic similar products ready to move. 

In June of this year, Internet brokerages Futu Securities and Tiger Securities announced their plans to enter the cryptocurrency industry, plan to launch cryptocurrency trading platforms, and stated that they are applying for cryptocurrency trading licenses in the United States and Singapore. Tiger Securities CEO Wu Tianhua said on the conference call, “Overall, customer enthusiasm for IPOs has cooled significantly compared to last year. It seems that attention has turned to the cryptocurrency market, especially after the listing of Coinbase.” Futu Niuniu CEO Li Hua (Brother Ye Zi) also said that in the future, Hong Kong and overseas users will have a great chance to trade Bitcoin directly on the Futu Niuniu platform. 

Whether it is Grayscale Trust Funds, Bitcoin ETFs, or encrypted trading services of securities firms, they have built a bridge between cryptocurrency and traditional equity markets, allowing ordinary investors to obtain legal windows for purchasing cryptocurrencies through the stock market and brokerage services. Let VCs see more compliance investment opportunities. 

In addition to building a compliance bridge with the traditional financial world, the value and prospects of the crypto industry itself have also begun to be recognized by mainstream institutions. 

The DeFi wave in the summer of 2020 has brought huge changes to the original labels of the encryption industry. “DeFi is the largest application that activates the crypto market. The lending, deposits, mining, and DEX (decentralized exchanges) in it are innovations in financial infrastructure. These projects can also be understood by Internet investors and attract Attracted more investors’ attention.” Chen Yuetian said. 

Frank Li also sighed to Ludong, “The birth of DeFi and NFT actually allows more and more Internet investors to see the future possibilities of the encryption industry. Everyone no longer thinks that the currency circle is a pure bubble.” 

As more and more large institutions around the world begin to “dance” with cryptocurrency, the mainstream financial industry’s impression of Crypto has changed. Compared with 2017, the current VC investment mentality has also changed. “Many Internet VCs in this wave want to look at the blockchain track in the long run. Their investment style will be relatively conservative and not so radical. They are more concerned about long-term investment in compliance and legality. This is a good phenomenon.”

As a disruptive financial innovation, supervision and compliance are also an important part of the cryptocurrency industry. Each policy promulgation not only delineates the development boundary of the industry, but also provides a safe environment for the development and growth of compliance projects. At present, in the context of strict domestic regulations on cryptocurrency and bitcoin mining, how to carry out crypto businesses in compliance with regulations, not only supports financial technology innovation, but also safeguards the interests of ordinary investors, has become the primary issue considered by domestic institutions. With the opening of cryptocurrency trading platforms, trust funds, ETFs and other licenses in the United States, Canada, Hong Kong and other places, the pace of VCs is accelerating. 

Change and unchanged in the cycle 

As we all know, affected by the Bitcoin halving, the price of Bitcoin fluctuates periodically every four years. Affected by Bitcoin price fluctuations, the cryptocurrency market also has obvious cyclical changes in bull and bear markets. In the past five years, the encryption industry has experienced two major bull markets in 2017 and 2020, and many innovations have also continued to emerge in the bull market. 

Looking at the history of the development of the encryption industry, the most well-known and most “fatal” innovative concept in the 2017 bull market cycle is IC0. Many domestic Internet VCs have also actively participated, and most of them have failed. 

In 2017, under the innovative IC0 model of Ethereum, the IC0 frenzy was set off in China, countless projects bloomed everywhere, and a large number of Internet VCs entered the market for radical investment. According to reports, from October to November 2017 alone, VC financing in the blockchain industry reached 1.88 billion U.S. dollars, and IC0 financing was 4.18 billion U.S. dollars. 

At that time, someone joked that the Internet circle has been divided into two camps by blockchain: those who engage in chains and those who don’t. 

With extreme market sentiment, the famous “sleepless group at three o’clock” was born. It is reported that at that time, the group gathered Shen Nanpeng, Zhen Fund founder Xu Xiaoping, Longling Investment founder/Meitu Chairman Cai Wensheng, Manzi Fund founder Xue Manzi, Kuaidi Taxi founder/Fancheng Capital founder Chen Weixing, Angel investor Li Xiaolai is waiting for a group of big investors. Xu Xiaoping is also well-known for his declaration that “the blockchain revolution has come, accelerate into the blockchain era”. 

However, when the bull market cycle ended in 2018 and the market entered a bear market, investors and retail investors were left with only a piece of chicken feathers. Just like the netizen @CallMeWhy sharply commented, “The domestic IC0 project is terrible. No project can really create value, and no project is really landed. Spraying a pesticide is also linked to the blockchain, and writing a novel is also linked to the district. Blockchain and live video are also linked to blockchain.” 

“In 2017, many domestic Internet people started to switch to this industry after seeing the wealth effect, making investments or doing projects. Some of them may not have done well in the original industry, just seeing new outlets for speculation.” Frank Li analysis. 

We can say that the domestic IC0 in 2017 has deviated from the fundamental meaning of the birth of Bitcoin and blockchain. Except for Ethereum, most other domestic projects are suspected of “fraud”, causing harm to investors. At the time when the market was extremely enthusiastic, the domestic policy to crack down on IC0 could be described as “turning the chaos out of the way.” It traded pains for the healthy development of the industry and safeguarded the interests of investors. 

The market transition between bulls and bears is a test for many people, and investors are no exception. When the tide receded, everyone looked around and found that they were all swimming naked. “In 2017, most Internet investors left the market without making money. Not many people actually made money.” Chen Yuetian told Rhythm when talking about cycles. After the 4-year blank period, “Everyone gradually forgot about this industry.” 

The time has shifted to the bull market cycle of 2020-2021. With the dual blessing of DeFi and NFT, the crypto industry has gained recognition from more international companies, Wall Street financial institutions, and even some small countries. This industry is no longer just the label of “speculation”, but also Many people believe that the encryption industry can change the future financial paradigm and become an important infrastructure that opens the door to Web3.0. 

With the opening of the compliance exit channel and the brighter future of the industry, more domestic Internet VCs have begun to change and “re-enter the market.” 

“This round of good domestic institutions began to change their attitudes, began to see, and slowly moved forward in a safe way.” 

The most obvious is that they are aware of the laws of the crypto industry cycle and are starting to buy it. “Invest in a bear market and harvest in a bull market. This is a theory recognized by all investors. There are actually cycles in the mobile Internet, AI, big data and other tracks, but they have a longer cycle.” Frank Li told Rhythm. 

If we said that “everyone puts Crypto to the illegal category” before, now “everyone’s attitude is a little more open, thinking that the encryption industry is a track of choice.” Chen Yuetian analyzed the psychological changes of VCs in this way. “Crypto may be a new thing that can drive change.” 

When the industry is no longer impetuous and speculative, and more and more institutions are steadfastly looking at the long-term, specialization and refinement have become an inevitable development path. “Now there are relatively mature post-investment services and market-making institutions in the crypto industry, which also guarantees the later growth and liquidity of the project.” Vanessa Cao analyzed. 

The industry has gradually matured and the organization has begun to deploy. How far is the future? “It is estimated that in half a year or a year, we will see a huge trend.” Chen Yuetian said. 

Once, no one would believe that a taxi could stop in front of their home without beckoning. Didi did it; once, no one would believe that food could reach their door within half an hour. Meituan did it. In the past ten years, behind these life-changing technologies, VC investment was inseparable. In the next ten years, it will be blockchain technology that will change lives, and this wave is also inseparable from the promotion of VC.

As Chen Yuetian said in the article “Spark Prophecy 2021”: VC should be a very romantic and idealistic profession. 

Once we invested in a company that made chips and the future of mankind out of sand. Once we invested in a company that moved computers to the desks of thousands of households. Once we invested in companies that were able to make various skin colors and languages ​​from all over the world. Companies that can communicate with each other in real time. 

VC should be someone who reserves all kinds of possibilities for change in this world. Prometheus brought the fire, and VC should be the person who spread the fire. 

references: 

Interpreting the regulatory progress and trends of the U.S. cryptocurrency industry https://finance.sina.com.cn/blockchain/2021-06-02/doc-ikqciyzi7302200.shtml 
Understanding the global regulatory trends, opportunities and challenges of STO https://finance.sina.com.cn/blockchain/2021-06-02/doc-ikqciyzi7302200.shtml finance.sina.com.cn/blockchain/roll/2018-11-14/doc-ihmutuec0104599.shtml 
Spark Prophecy 2021 https://www.theblockbeats.com/news/24644 
Shen Nanpeng, Feng Bo, V God, Wang Xing What are you talking about with Zhang Tao? https://www.tuoluocaijing.cn/article/detail-70069.html 
a16z https://a16z.com/crypto/ 

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/when-the-tide-recedes-traditional-vcs-begin-to-enter-crypto/
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