Venture capitalists (VCs) in the crypto space are shifting their focus to more established assets like Bitcoin and Ethereum, stepping back from risky early-stage investments.
Adam Cochran, a partner at Cinneamhain Ventures, discussed this trend on August 9, explaining why many VCs are slowing down their investments in new crypto projects.
Cochran pointed out that the returns from Bitcoin and Ethereum offer a more favorable risk-reward ratio compared to traditional investments. This allows VCs to avoid the higher risks that come with investing in new and emerging Web3 startups.
He mentioned that many venture firms have investors, known as Limited Partners (LPs), who are mainly interested in returns that outperform traditional investments like index funds.
“VCs have slowed investing in crypto by a lot, and it’s a bit of a nuanced reason,” Cochran explained, noting that many venture firms have Limited Partners (LPs) who prefer stable returns that outperform index funds.
Over the past ten years, Bitcoin has delivered an average annual return of 60%, while the S&P 500, a key stock market index, has averaged just 13.20%, according to data from Curve.eu.
Because of this, VCs can rely on Bitcoin and Ethereum to provide good returns without needing to take on as much risk as they might in other industries.
During the last crypto cycle, which ran from 2020 to 2024, many VC firms were active but primarily invested in projects that had already gained popularity. Cochran noted that this strategy allowed them to benefit from existing trends without the risks tied to new ventures.
He also pointed out that recent trends in the crypto space, such as NFTs and decentralized finance (DeFi), have lost some of their momentum, leaving the industry uncertain about what the next big opportunity will be.
Even with the shift towards safer investments, venture capital funding in the crypto sector is still strong, with over $1 billion raised in three separate months in 2024.
However, this is lower than the levels seen in early 2022, when monthly funding regularly exceeded $4 billion. Cochran’s comments highlight a more cautious approach among VCs, who are choosing the stability of Bitcoin and Ethereum in an uncertain market.
