Bitcoin has dropped over 50% from its all-time high of $69,000 in November 2021, and the leading U.S.-based crypto exchange Coinbase recently saw its shares fall 69%. It is clear that cryptocurrency – much like all of Wall Street right now – is on the cusp of a bear market.
From the Winklevoss twins’ Gemini sacking 10% of its workforce and Robinhood 9% to Rain Financial Services sending dozens of workers home on the same day, 2022 is beginning to look like the latter half of 2018 when the crypto bear market downturn forced crypto companies worldwide to let go of employees.
While the media focuses on the negative aspects of the bear market and its hit on the industry’s reputation, the world’s largest crypto exchange by trade volume, Binance, recently raised $500 million to invest in Web3 startups. Several other venture capitalists are spreading funds across the industry when every indication seems to be pointing in one direction; the crypto market may be entering a bear cycle.
As cryptocurrencies, stablecoins, and decentralized finance (DeFi) dominate the headlines for the wrong reasons, blockchain startups can be more strategic and use the newly available funds to choose projects demonstrating the sector’s maturation beyond cryptocurrencies. This article explores some examples of projects to trial during the crypto bear market.
Despite the cryptocurrency market struggling, you need to understand why crypto investment arms and venture capital firms are pouring millions of dollars and betting on Web3 startups. Per a DappRadar report, VCs poured a whopping $2.5 billion into blockchain startups specializing in blockchain games and metaverse projects in Q1 2022. Investments are only expected to increase based on the announcements of Andreessen Horowitz’s $4.5 billion crypto fund, NFT blockchain Flow’s $725 million Ecosystem Fund, and Binance Labs today announced a $500 million fund to invest in Web3 startups.
Venture capitalists understand the three critical ingredients required to create a successful business – the right idea, the right time, and the right team. Most blockchain startups will likely have the first two ingredients, but especially the right time. Nonetheless, the ability to generate the right idea and combine it with the right team is the recipe for achieving the best level of success. While VCs do help tech startups raise investment capital to finance projects and scale growth, they’re also in the business of raising more funds.
Since building a successful blockchain enterprise requires tens to hundreds of millions of dollars in investment capital, startups can take advantage of the flowing VC funds to attract an extra team member looking for firms with the right idea, hoping that their liquidity event will translate to a successful symbiotic relationship.
The 2017 ICO boom heralded the crypto space’s first major Bull Run when BTC reached the all-time high of $20,000 in December of that year. What followed was a series of events that exerted enough pressure on the crypto industry, leading to a most grueling crypto winter. Ironically, the subsequent bear market became the launching pad for the burgeoning DApps ecosystem, with most foundations for the industry we now know being laid at the time.
The bear market allowed these ventures to slow down and invest in the future, rather than attempt to rush a product or solution out to take advantage of the gold rush of a Bull Run. After close to 18 months of struggle, the crypto market resurrected, and there was revived interest in the space until another massive disruption in most industries in March 2020 caused by the Covid-19 pandemic. The resultant accelerated digitization saw the DApps sector begin to take shape as projects showcased their enhanced products two years later.
Examples include the DeFi ecosystem that introduced several players who blazed the trail for a multi-billion industry that forever changed the DApps narrative. Consumer confidence and renewed interest in the blockchain fuelled the next Bull Run, pushing prices to the new highs of November 2021. NFTs, DeFi, and play-to-earn blockchain games planted their seeds when VCs and other investors poured record capital on blockchain-based Metaverse and game projects.
Binance Labs has already removed the guesswork for aspiring startups by announcing its $500 million investment fund will create enhancement for blockchain, Web3, and value-building technologies. Binance Labs intends to make investments across different stages, including incubation, early-stage venture, and late-stage growth. Blockchain startups can take advantage of a myriad of opportunities available across the crypto and Web3 spheres, including DeFi, gaming, infrastructure, and the metaverse.
There are also opportunities available in late-stage investments for bridging the Web3 ecosystem to make matters more manageable by offering enterprises and Web3 functional and reliable tools that could facilitate a quick uptake of their products and solutions from conceptualizing to the finished product stage. Since we’re in a bear market, startups can grow without the need to meet unrealistic expectations or hit rapid growth milestones.
Builders can focus on better products and delivering real value to the industry so they are better positioned for the next upswing. There’s already an unstoppable momentum as companies start dreaming about latching their businesses to the Web3 train, even as projects and organizations pop up everywhere. Assuming that every company that has a presence on Web2 will eventually want to shift to Web3, there’s going to be a huge market for solutions to help overcome different barriers to transitioning to Web3.
Aspiring startups are in a solid position to utilize the market downturn to develop into go-to providers who can offer multi-chain tools and infrastructure to help embrace complete decentralization via Web3.
To paraphrase Elon Musk, “crypto winters are not necessarily a bad thing […] if the summer goes on for too long, a misallocation of capital occurs, and it starts raining money on fools.” The current crypto winter happens when the DApps industry, with over 50 blockchain ecosystems and 2.5 million daily active wallets, is much more equipped. Institutional and corporate players now dictate the blockchain and crypto landscape. Even though the explosion of the DApps industry that took the digital world by storm four years ago was short-circuited by another winter, the rise of Web3 brands pushing into the metaverse shows the potential for organic growth from within the space, again.
Startups can take advantage of the billions of dollars that private investors and VCs have already poured into blockchain to harness the full potential of worlds of play-to-earn games and NFTs to help build the foundation for the emerging Web3 metaverse. Startups can now avail themselves of the available funding to plant seeds that will germinate as soon as the crypto winter is over.