Markets
How crypto founders are preparing for the next bear market – DL News
- Crypto founders expect another slowdown within 18 months.
- Elliot Chun, partner at Architect Partners, presents their thinking.
- Some areas of concern include the hype around fluid replenishment protocols.
Crypto founders are already preparing for the next downturn.
That’s according to Elliot Chun, a partner at Architect Partners, a firm that advises crypto companies on mergers, acquisitions and financing strategies.
“Everyone comes to me and says, ‘I’m preparing for the next drop in 18 months and I want to capitalize on the current move,'” Chun said.
“I’ve never seen so many founders and management teams saying we need to make something happen within 18 to 24 months.”
The fear is justified. The sharp crypto downturn in 2022 has caught many companies off guard.
Crypto companies like Bitcoin miner Core Scientific and exchange Voyager have had to declare bankruptcy, not to mention spectacular fraud-driven booms like FTX.
Nonetheless, savvy startups can leverage the current bullish trend to their advantage by exploiting Wall Street’s interest in crypto as well as venture capitalist’ renewed interest in the sector.
be ready
Chun said crypto companies prepare differently, depending on their profiles.
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“Most of the time, they are looking for a strategic partner – a company from traditional finance that has a similar vision,” Chun said. “They may be there as a business partner, or possibly acquire the crypto company completely.”
Naturally, companies that raised significant capital in 2020 or 2021 don’t think the same way as those that didn’t, such as recent startups.
The former often seek to generate enough revenue for private equity to buy them out. One way to achieve this is to establish a global presence, since the industry is still largely fragmented on a regional basis.
Businesses may also choose to expand their range of products and services.
“Institutional clients do not want to work with five different groups to jail, tokenization, restructuring funds – they need comprehensive and comprehensive services,” Chun said. “There aren’t many who can do all that.”
Recent startups, Chun said, have one or two great products and are led by believers in the industry’s long-term potential — but being a founder is grueling work, so they’re open to acquisition.
Learn from 2021
Between Wall Street’s entrance into space through spot bitcoin exchange traded fundsand increased adoption, the prospects for well-run crypto companies have never looked better, Chun said.
It’s a different feeling from the excesses of 2020 and 2021, when venture capitalists’ fear of missing out “led to unrealistic valuations, which led to poor operational discipline,” Chun said.
Businesses acted as if the abundance of capital would last forever.
“People were spending money on ridiculous things — like $150,000 for a party at a conference, for a company that didn’t have any revenue yet,” Chun said.
But companies that survived the recession exhibited “much higher” operational discipline, Chun said.
Some even generate income.
Fluid recovery
Even though this bull market is healthier than the previous one, concerns remain.
Chun cited the hype around EigenLayer and others recovery protocols – which allow investors to secure the Ethereum blockchain and other protocols, like oracles and bridges, with the same Ether stack.
” The notion of liquid reconditioning Crypto-native internal revenues are essentially layered on top of each other to the point where no one even understands how to untangle these things,” Chun said. “It’s dangerous.”
Coinbase researchers expressed similar concerns in a April report.
Eigenlayer did not immediately respond to a request for comment.
These projects receive tons of capital from venture capital firms because they generate quick and eye-popping returns, Chun said.
Investors who allocate capital to projects will tend to jump ship immediately after their token allocation is released, Chun said – much like venture funds that sell their shares immediately after a company’s IPO. business.
While companies will take three to seven years to go public, crypto projects can airdrop their coins in a matter of months.
“Venture capital firms can look to their liquidity providers and say we got an 80% return in a year — and they look like geniuses,” Chun said.
Coins
Private investment also distorts markets on a larger scale, Chun said.
Original crypto investors were able to leverage their understanding of the technology to gain an advantage in the past, but that has changed.
Everyone has access to the same information and can execute on that information at the same speed.
So how can professional investors benefit?
“Their advantage is only in early access to projects,” Chun said. “Either table rounds or equity rounds, with token distributions that normal people don’t have access to.”
This could explain why retail traders are turning to memecoins it does not have billion into tokens ready to be unlocked, leveling the playing field.
“Retailers actually have the ability to prove once again that they can get more return from something that doesn’t have a venture fund — or a founder,” Chun said. “I can’t blame them for trying.”
Chun nevertheless said that memecoins that do not seek to advance the space will ultimately lead to their downfall.
“The market will play itself.”
Tom Carreras is a markets correspondent for DL News. Do you have any advice on VCs and crypto? Contact us at tcarreras@dlnews.com