The VCs are Taking Over Crypto

Venture Capitalists in a wallet

Andreesen Horowitz sets a new record

We all know that venture capitalists have their hands in some of the biggest corporations in the world. Now, they are venturing (pun intended) into the crypto industry at rates we have never seen before. Just like anyone else with money, the best time for VCs to buy is during a crypto winter, meaning now.

Recently, it was announced that Andreesen Horowitz (a16z), one of the most influential VC firm in the space, has launched a new $4.5 billion crypto fund; the biggest in crypto ever. As part of this, the firm announced their first annual "State of the Crypto" report. In the report, a16z emphasized that the crypto industry will be the future of web3 and has immense potential.

While this move is good for the continued funding and innovation of many projects, it leaves the door open to more centralization. Projects that are primarily funded by VCs are more likely to take their advice over other people. This is especially true of proof-of-stake projects, since the amount of coins you own directly influences block creation, among other things.

Behind the scenes

We truthfully don't know what conversations dev teams and VC firms have together. Most of these discussions are behind closed doors and as such, yield details that are only released later to the public in snippets, or simply not at all. 

Most DeFi projects operate through companies under the title "[crypto project name] labs." Through this strategy, the founders of the project can quietly communicate with VCs, market their project, among other business functions. While these things can be beneficial to a degree, this structure increases centralization and opens the door to increased regulation. You can see that there is massive VC interest in "compliant" "eco-friendly" chains like Solana.

What happens now?

Yesterday, some former Binance executives at the VC firm Old Fashion Research launched a $100 million crypto investment fund. The decision to stay in the industry by these former executives highlights the future prospects of the industry. Over the past year, it's become clear that the crypto market is starting to flow with the stock market. While this is the case now and maybe for the foreseeable future, as the crypto industry matures, the correlation between both asset classes will likely decrease.

As investment professionals and institutions buy into crypto, the landscape of the crypto industry will continue to change. Many say that analyzing VCs can give you good investment ideas, but as shown with the Terra debacle (who had throngs of VCs backing them), they make mistakes too. VCs can be valuable in providing capital to emerging projects, but we should all be aware of how they affect our investments and the future of the crypto industry.