Greetings from our recent trip to the US! We’ve just returned from an enlightening crypto conference, a gathering hub for the movers and shakers of the crypto world. Our visit provided us with an excellent opportunity to delve deeper into the prevailing industry sentiment and gather invaluable insights. Leveraging our established relationships, we engaged in insightful discussions about the current state and future directions of the crypto industry. Here are some of the key observations and insights gathered from our dialogues:
1. Current Market Structure
An observation that we were told is that the crypto industry presently faces a significant issue with capital misallocation. Notably, investments are predominantly directed toward infrastructure development rather than application growth. While some key infrastructure elements (zk, MEV, sequencers, roll-ups as a service) are still needed to improve the usability of the technology, there are many examples of infrastructure projects that have raised significant amounts of cash and are today considered ghost chains. Contrarian perspectives propose that reducing focus on infrastructure in favor of applications could be a strategy to achieve superior returns compared to the industry standard. As an example, investors have recently started looking at digital fashion — a sub-sector of Consumer tech — in order to find outstanding new applications that will drive future success.
2. Value Capture Mechanisms within the Crypto Industry
Historically, most tokens have been often issued with poor tokenomics design, predominantly due to VCs’ push for short-term liquidity without reflecting real economic activity. These improper value capture mechanisms have led to unscrupulous activities, such as insider trading and market manipulation. This will lead to a positive and needed market regulation. However, for the crypto industry to mature and for decentralized systems to thrive, value needs to accrue properly at the token level. While some VCs now heavily invest in Equity (mostly SAFE) of the crypto startups to the cost of tokens (SAFT), firms such as 6th Man Ventures are working on frameworks to achieve more sustainable business models. This calls for more research into tokenomics which in turn should educate founders to learn how to collaborate with the most value-add investors.
3. Challenges & Outlook of Regulation
Regulatory challenges continue to cast a long shadow over the crypto industry, contributing to an overall pessimistic sentiment. Actions by regulatory bodies, such as the SEC’s moves against a few CeFi companies (e.g., Coinbase, Ripple, Grayscale) have triggered industry-wide apprehension. Coinbase’s case is interesting because it forced the SEC to position themselves on providing guidance for regulation in crypto. While some players are considering solutions to avoid the crackdown (moving offshore if needed), there’s still a wait-and-stand approach based on next regulators’ guidance. On a longer-term perspective, 2024 elections will be key in predicting the US’s regulatory evolution on technology. Simultaneously, macroeconomic factors, including a banking crisis and high inflation, are leading to continued credit tightening and a reduction in disposable income which in turn will affect markets globally. With this backdrop, along with a few other factors, some managers are deciding to strategically hold Bitcoin as a hedge against a depreciating USD.
In case you missed it…
General Technologies 🚀
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⚛️ What applications are quantum computers beneficial for? Despite the nascent state of quantum computing, rapid advancements are unfolding. Start-ups and tech behemoths alike are harnessing its potential for tasks from drug discovery to climate solutions, signalling the dawn of large-scale quantum computation.
🧠 Brain–spine interface allows paralysed man to walk using his thoughts. EPFL researchers’ breakthrough brain-spine interface has empowered a paralyzed man to walk, translating his thoughts into muscular control through a direct brain-spinal cord connection.
Podcasts
🎙️ Hear from Seth Winterroth, Partner at Eclipse Ventures on how venture firms approach investments in deep technology. To listen click here.
🎙️ Listen here to Elon Musk at the WSJ CEO Council Summit as he discusses the future implications of AI, his 2024 political succession plans, potential leadership changes at his companies, and possible regrets over buying Twitter in a conversation with Thorold Barker.
🎙️ Listen here to The Ezra Klein Show to learn more about the vulnerabilities and potential risks of the semiconductor supply chain. They play a critical role in powering not only our personal devices but also essential components of various industries, from transportation to defense and AI. However, the semiconductor industry’s concentrated supply chain poses challenges due to its vulnerability and potential for weaponization, making it a crucial area of concern in the technology landscape.
Sustainability 🌍
🔋 Investments in solar energy are projected to surpass oil production, according to data from the International Energy Agency, with the industry expected to attract more than $1 billion per day in 2023.
☢️ Helion’s claim that their first fusion plant will be operational within five years is met with skepticism by experts, despite having Microsoft as its first customer and planning to build a commercial plant in Washington state by 2028 to generate 50+ megawatts. Click here to access MIT’s article on the subject.
🌍 G7 summit: 3 key takeaways for net zero action, nature and the circular economy. The gathering held potential for wide-ranging impacts that could expedite measures to reduce carbon emissions worldwide, safeguard natural environments and biodiversity, and promote a circular economy.
🇿🇼 Global carbon market in turmoil after Zimbabwe grabs offset money. Carbon credit projects globally could be thrown into uncertainty if a government insists on claiming fifty percent of the revenue from private initiatives aimed at forest conservation and emission reduction. Read more here.
⚓️ The uncertain seas of ocean CDR. The big science and policy questions to consider before taking the plunge into ocean-based carbon dioxide removal.
Podcasts
🎙️Don’t miss out on the Venture Climate Alliance webinar this Thursday. Speakers will include representatives of leading VC funds including Prelude Ventures, Union Square Ventures and Tiger Global. Click here to sign up.
Blockchain & Crypto 💸
🌏 Hong Kong continues to implement crypto-friendly regulations, attracting companies and customers.
👩⚖️ Coinbase sues the SEC after months of silence from federal regulator.
🇪🇺 EU finance ministers approve MiCA crypto regulation, paving the way to innovation.
📈 L2’s are now seeing twice as many transactions as Ethereum’s L1, highlighting the demand for cheaper and faster transactions.
🔷 The Threat of ‘Too Big to Fail’ applications on the Ethereum network. Stakers on Ethereum currently generate 5.3% APR on their ETH, which has driven so much demand that new validators need to wait at least 36 days before being added to the network. The risk of this success, warns Ethereum’s founder Vitalik Buterin, is that applications might become too big to fail and pose risks to the network.
Based in London, UK, Seedcamp is a pioneering early-stage investor focusing on pre-seed and seed stage investments across Europe. Since 2007, it has fostered 460 companies, including nine unicorns and two public entities, through five prominent investment rounds. As we partner with Seedcamp on the newly announced $180M Fund VI, we eagerly anticipate the opportunities this venture will bring.
Seedcamp Portfolio Spotlight
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