A top VC firm is plowing billions into crypto … don’t make this mistake today … similarities to past new technology adoption … a four-point checklist for when the bear will end
Bear markets are often when the best opportunities come about, when people are actually able to focus on building technology rather than getting distracted by short-term price activity.
That comes from Arianna Simpson, a general partner at Andreessen Horowitz.
For anyone less familiar, Andreessen Horowitz (which also goes by a16z) is one of the premier venture-capital companies in the world. Some of its early bets include Lyft, Pinterest, Slack, Okta, Instacart, Facebook, Airbnb, Roblox, and Coinbase.
As you can guess, it requires vision to imagine “what could be” with many startups when they’re just fledgling companies hemorrhaging cash, having trouble establishing traction. And don’t kid yourself – it can be incredibly hard to stay the course under such circumstances.
But seeing past the short-term challenges and focusing on the long-term potential is how groups like Andreessen Horowitz reap multi-billion-dollar windfalls when “would could be” turns into reality.
So, where is Arianna Simpson from Andreessen looking for opportunity in this bear market?
From CNBC:
Andreessen Horowitz plans to plow billions of dollars into crypto start-ups while digital asset markets are in a rut.
The Silicon Valley firm announced a new $4.5 billion fund for backing crypto and blockchain companies on Wednesday…
Right now, it’s incredibly challenging to see past the market losses and doom-and-gloom. Crypto sentiment is unbelievably bearish. And for good reason – prices are in the toilet.
Plus, there are many prominent voices attacking the sector. One recent example is Christine Lagarde, president of the European Central Bank (ECB), saying “My extremely modest opinion is that cryptocurrency is worthless. It is founded on nothing, and there are no underlying assets to serve as a safety anchor.”
Simpson’s response to such attacks is interesting:
The people who are skeptical are not where we are, which is again in the fortunate position of being able to talk to these brilliant builders all day.
The other thing I would add is that many of the skeptics are the titans of Web 2.0 — they have been very much in a position to profit from and benefit from the closed platforms.
I find the second point especially important to remember. While Lagarde isn’t a Web 2.0 titan, she has a vested interest in slamming crypto. That’s because it has the power to reduce her power.
Why would we expect her not to naysay it?
Returning to the broader point, maintaining a long-term focus during market conditions like this is difficult. But such a mindset is part of the cost of life-changing returns in the years to come.
***While we hold to our long-term convictions, it’s also appropriate to protect your wealth in the short-term
On that note, I found an interesting parallel between Simpson’s crypto approach and that of our crypto expert, Luke Lango, editor of Ultimate Crypto. In short, focus only on the highest quality projects in today’s climate.
Here’s how Simpson put it:
The technical diligence and the other kinds of diligence that we do are a key part of making sure that projects meet our bar…
…We continue to invest really in only the top echelon of founders.
And here’s Luke from his latest Ultimate Crypto weekly update:
In order to navigate through this crypto crash, investors need to consolidate their portfolios around only the highest-quality crypto projects with solid fundamentals.
To achieve this goal, Luke uses his proprietary MultiFactor Altcoin Grading (MAG) system. It analyzes 10 critical attributes of every altcoin, scores them on each attribute, and produces a total score.
If an altcoin earns a score above the “buy threshold,” Luke analyzes it further for a potential investment. If an altcoin scores poorly, he recommends investors steer clear.
One recent example of the power of using such a system involves Terra (LUNA). While investors raced into the much-hyped crypto, Luke’s MAG system gave it poor marks. You know how that turned out – the unprecedented collapse of the $40 billion crypto project.
Bottom line, quality is paramount for crypto investors today.
Moving on from caution, what’s the basis for optimism about crypto’s future given how bleak things appear?
Yet again, Simpson and Luke share a similar response.
***Crypto is following a well-worn technology-adoption path
Back to Luke’s weekly update:
A lot of investors – including us – liken the current crypto uprising to the internet emergence of the late 1990s.
Specifically, we’ve pointed to various charts before which have shown that crypto adoption globally today is tracking where internet adoption was in the 1990s.
And now, back to CNBC:
Simpson and partner Chris Dixon liken the long-term opportunity in crypto to the next major computing cycle, after PCs in the 1980s, the internet in the 1990s and mobile computing in the early 2000s…
As you can imagine, if today’s crypto opportunity is on par with PCs, the internet, and mobile computing, the profit potential is astronomical.
And while we believe that’s true, it’s important not to minimize today’s pain. This has been brutal.
It’s also important not to suggest we’re on the cusp of a marvelous rebound. These crypto winters can last longer than many speculators can handle. Crypto investors need to be mentally prepared for painful conditions to last.
Luke is open about this:
…This is a classic situation of near-term pain, long-term gains.
That’s the 400-foot-view of the crypto markets today.
But let’s not hide behind that 400-foot-view, because the reality is that the damage in the crypto markets thus far has been very painful, and before the “long-term gain” part of this cycle, things could get a lot worse.
Indeed, over the next several months and quarters, we see a lot of crypto projects going belly-up like Terra.
This is why Luke has been preaching consolidation and sticking only with the best-of-the-best. This is not the time to be taking excessive risks.
***All that said, let’s now focus on the exciting part of what’s coming
This will pass. And when it does, the price destruction we’ve seeing today will be the seeds of tomorrow’s monster crypto bull.
In fact, Luke believes today’s crypto bear echoes the Dot Com Crash and rally.
Back to Luke:
What we’re seeing play out in the crypto crash of 2022 is very similar to the Dot Com Crash of 2000.
The thing about the Dot Com Crash of 2000 is that it simultaneously did two things: 1) it created the generational opportunity to buy stocks like Amazon at $5, and 2) it wiped out about 90% of all internet stocks, because while the internet was/is this super powerful technology, 90% of the internet startups back in 2000 were using the internet in the wrong way.
The same will be true this time around. Eventually, this crypto crash will create opportunities similar to buying Amazon stock at $5 in 2001.
In the meantime, it will also wipe out about 90% of the crypto projects out there that are using blockchain technology in the wrong way.
***So, when will the sector finally turn from bearish to bullish?
Luke points toward four requirements.
One, inflation needs to subside and Treasury yields need to stabilize.
Two, bitcoin needs to stabilize.
Three, altcoins will nearly round-trip back to 2020 prices. Not necessarily a full round-trip, but it will be a massive give-back of gains.
Four, bitcoin dominance will need to retrace back above 50%. That would indicate the junk cryptos have been flushed out of the system.
And when will all this happen?
Luke expects some of it to begin this summer, such as cooling inflation and stabilizing Treasury yields. The rest should come later this year, such as bitcoin dominance back above 50%.
Overall, Luke estimates we’re a few months away from bottoming.
So, for now, be cautious… stick to only the top-tier altcoins… be mentally prepared for more weakness… and understand that we’re going through a new technology-adoption cycle that is paving the way for massive crypto sector growth.
This bear market isn’t the end of the story. Hang in there.
Have a good evening,
Jeff Remsburg
