Tom Schmidt on why this cycle is different for venture
Jan 14, 2025
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Tom Schmidt, a Partner at Dragonfly, shares his insights on the evolving cryptocurrency landscape. He discusses how crypto is becoming a legitimate institutional asset by 2025 and the unique challenges facing venture capital in this space. Schmidt highlights the shift from price-driven token models to application-based usage, emphasizing innovation over hype. He also explores new customer acquisition strategies and the potential recovery of the market, signifying a promising future for crypto startups.
The cryptocurrency market is evolving into a recognized institutional asset class, with a shift towards profitability and sustainability exemplified by emerging applications and startups.
Despite a downturn in venture capital and crypto markets, this period of correction could lead to healthier investment practices as first-time managers face stricter fundraising conditions.
Deep dives
Opportunities in Venture and Crypto
Enterprises entering 2025 may find substantial opportunities in the venture capital landscape, particularly within crypto. As traditional markets drive crypto valuations, there is growing interest from institutional investors who are beginning to recognize crypto as an essential asset class. This transition reflects how past perceptions are evolving, as recent experiences indicate that crypto behaves more like risk assets influenced by interest rates rather than purely speculative investments. Moreover, observed changes suggest that many sophisticated players are now involved in pricing these assets, which could lead to diversification for crypto relative to traditional allocators.
The Shift from Liquid Exposure to Specialization
In the past, funds offered crypto exposure primarily in the form of Bitcoin and Ethereum, serving as proxies for institutional investors. Over the years, the landscape has evolved to allow asset managers to specialize in crypto without solely relying on liquid positions, like those held by hedge funds. Recent discussions emphasize that modern fund structures now provide more tailored investment opportunities, catering to the growing sophistication of limited partners. This evolution reflects a shift away from simply holding Bitcoin as an asset and evolving toward a more comprehensive venture capital ecosystem focused specifically on crypto.
Resilience and Corrections in Private Markets
The private markets for both venture capital and crypto are currently experiencing a downturn, raising challenges for fund managers, especially those seeking to establish new funds. Reports suggest a notable reduction in new fund launches, indicating a highly competitive and cautious atmosphere for fundraising, which is likely to persist into 2025. While blue-chip funds may navigate this climate better, many first-time managers are struggling due to tightened capital availability and market distortions from previously inflated valuations. However, this period of correction might foster a healthier market by encouraging sensible funding practices and more focused investment strategies.
Emerging Trends and the Future of Applications
Shifts in consumer engagement and application viability are beginning to reshape the crypto landscape ahead of 2025, emphasizing a move towards profitability and sustainability. Notable companies are increasingly focusing on generating revenue, as illustrated by profitable startups that have emerged despite recent market challenges. The anticipated emergence of applications that leverage blockchain technology without being solely dependent on token fluctuations may redefine user experiences, attracting a broader audience. As industries adapt to current market dynamics, fresh talent entering the space promises innovation and experimental approaches that could drive the next wave of viable crypto applications.
The Scoop's host Frank Chaparro was joined by Dragonfly Partner Tom Schmidt.
In this episode, Chaparro and Schmidt discussed the cryptocurrency market acting as an institutional asset class moving into 2025, and how this cycle has been different for venture captial operating within the space.