Private and Public Crypto Market Update 2024 | BITKRAFT Summit 2024

thank you everyone for joining for the market update I think usually um we would do the market update only on the lp session um which unders serves the whole portfolio companies because we want you guys to know how we're thinking about the market too um honestly didn't prepare too much for this Jamie and just and put together some slides um if you guys ask me something about the markets that I don't know then I'm probably doing a better bad job of staying on top of them to begin with um and we're going to keep it pretty casual so I think um if anyone has a question I on the middle of a slide or before I flip to the next slide just raise your hand I'll try to keep it as as chill and as casual as possible so first let's talk about the last six months um obviously last 6 months have been tough primarily down um one thing to note on that left chart there with the alts performance um all

technically outperforming eth is um salana and telegram or tcoin are are um included in that right so if you look across app alts like um portfolio companies or or or you know applications like many of you are or or intend to be um the drops have been closer to 50 to 75% 80% on the sub 50 million market cap scale and I think the a lot of this is um people you know it's like technical analysis I've seen this joke before it's like technical analysis for for crypto is like is to dudes what astrology and horoscope is to to women right um or to a lot of dudes too um I'm not a big astrology guy but but people think it's like okay like four years two years of bare Market one year recovery one year bull market and and it sort of has repeated historically but it makes no sense I think in our view to think about the market this way because the more that the market grows and the more that you have professionals coming into the space the more that the market should tend towards efficiency all markets tend towards efficiency at some time scale um

and certainly it should happen with crypto and so for example for this year there was a lot of expectation on the having and then the having comes and like nothing happens why because macro wasn't working out on the same way but because you know in Q4 um the Bitcoin ETF gets approved um people start thinking about the ethereum ETF given the rationale for how the Bitcoin ETF was approved the market starts rallying there was a little bit of a relief there in terms of macro tech stocks were rallying Nvidia is rallying which is pulling the rest of the market up and I think a lot of people position super long because they thought it was the beginning of a new bull market and the issue with positioning um is that people just set themselves up to be disappointed and so once you know macros Rec seeded the ETF flow sort of normalized um if you look his back right what we found out was about 80% of the initial flows into the Bitcoin ETF were retail right and the meme that was going on at the time was like this is the best it BTF launch ever which is true and the institutions are here and that's not really true like usually for a wealth

adviser to advise people to buy Bitcoin or buy Bitcoin ETF there's a very long compliance and and getting comfortable cycle that happens internally which just took a lot of time um and so now we're seeing those inflows picking up but because the market was very positioned in the beginning once the flows receded everyone got super spooked but in that initial period a lot of companies that were waiting for the right time to launch a token rushed to Market which is like why you see that huge Spike there um on the top right chart um and so look at the bottom chart right like inflows Spike up and then they begin to to to taper off um and this is happening while a lot of the altcoins from the previous cycle are unlocking investors are looking to realize profits because there's a fundraising cycle going on and the sell pressure on the tokens greatly outpaced The Bu pressure on the tokens which really pushed the value of all these assets down Bitcoin the least because the the ETF has a volatility dampening effect ethereum the most in this chart again there's this wonkiness with the AL piece um just because people

were very positioned long ethereum and then ethereum has sort of had a little bit of um difficulty finding narrative right so this is like the the last six months if I had to choose one chart to go by um it would be the global liquidity chart um crypto sits at the tail end of the RIS Spectrum um it is the future of finance and the future of gaming and the future of all these things but when you're talking about the future you're talking about you know discounted cash flows where the majority of the value of something sits very far out um and for people to bet on the future they sort of have to be feeling good about the present um you can see previously these huge spikes in global liquidity and then um crypto or altcoin Spike up with it and then there's this Divergence there um you know from more recent periods where all to really Spike up where there's no big change in liquidity and that's where you see the market get ahead of itself and then correct back right last two three weeks we saw that rally pushed AS Global liquidity began to unlock again right

rate cut plus almost 300 billion of stimuli in Chinese stocks which led to the best week for Chinese stocks ever or at least like in a very long time and so this is beginning to change but up to this point this has been the key Divergence that I think has hurt a lot of people um volumes are steadily coming back um volumes are are important right volumes are a sign of more participants in the market generally or at least the same amount of participants being willing to trade more Capital back and forth so 2.8x um increase in spot volumes from you know middle of last year which was pretty you know bearish time to be around so there is a steady Improvement um but it's it's steady right it's not radical um stable coins um inflows they're also help helping um but they're still lower than previous Cycles you would expect people to go have more stable coins and then go from stable coins either to Majors or to alt and so between this slide on volumes and this slide on inflows you can see that there's like a little bit of a steady Improvement movement um but in in

particular with stable coins we have not seen really that buildup in stable coins at the centralized exchanges that would lead to um to more price action to more attention at the at the exchange level um the the ETF net inflows have been mixed I think uh Bitcoin has had a a much stronger narrative um whether it's because of the the digital gold piece of it um but I think you know if someone comes by I have no idea what happens with these slides Jamie you're in trouble um the um you know if you think about the the the Bitcoin pitch right someone's like why should I buy Bitcoin it's like there's only 21 million of them and it's digital gold and a portion of new money will like digital gold more than physical gold it's like okay that's simple why do I buy ethereum it's this SM contract layer and it's it's inflationary or deflationary and a little bit depends and like that pitch gets pretty long right and so what we've seen with the Bitcoin ETF is that has been a lot easier for people to adopt into it and Bitcoin is the most defensive asset in the category and so it's like the

gateway drug into crypto so the the Bitcoin flows have been much much stronger whereas the ethereum flows ethereum had significant upward price volatility um when the ETF sort of got leaked right when the 19 B4 filing got approved which then sat a clock of like a month until the the S1 filings got approved um and then it receded um it's still one of the top I think 10% ETF launches ever like it is still actually a very material ETF but I think the issue um as a lot of things with crypto is just that mismatch between um expectations and reality right I think overall you zoom out over the last couple of years and that's whether it's infrastructure products regulation crypto being a big part of the campaign Trail like clearly there's a very significant Improvement in what's going on but it is slower than how the market was positioned so like that super long positioning in q1 followed by these um mixed inflows I think have caused um a lot of Divergence um so all tokens overall have

been in a downtrend some narratives are doing better um I think what's interesting to call out is there's a lot of people that will talk about how um Crypt gaming is in trouble or it's a bad performing asset class um indeed cryptog gaming has been down together with the rest of alts um but if you look at on a category by category basis the only two um categories that have performed better than crypto gaming were um crypto andai and um and uh mem coins crypto Andi is is very cool um it certainly has um it can ride the broader AI narrative right so there's a lot of interest in AI people immediately map it out like what's the AI play in crypto so you see for example tow outperforming this year in q1 the craziest raises we've seen in a while were all AI raises right like sentient I think raised like over $100 million in their seed um there's like a number of these other like $100 million seed rounds last year for a summit we had a talk on crypto aai um it's on YouTube it was called um actually I forgot was called it like fan Bargains

um and and and we think it's it's super interesting we think there's a lot of interesting parallels between crypto and AI um but you if you see $100 million series seed rounds going on um it's probably uh probably a sign that it's a little bit stretched and then you go into mem coins from our perspective as a fund we haven't treated meme coins as an investable asset class um some funds have done it um I commend them for their bravery um but ultimately if you look one level deeper into that mem coin trade you know you may have I don't know Pepe or uh whiff or any of these you know things sort of you know going up a lot but there's like a ton of diversions right like the vast vast vast majority of meme coins go nowhere because they're designed to go nowhere because they're explicit designed to have absolutely no value whatsoever right and so um just like nfts in a way right like only or or art or any of these like cultural objects a very small amount of them will grab some intangible attention of people um and and and hold value and the majority of them are just inherently not

going to have value because they're they shouldn't have any value um and then game is the third category after that um which to us is like this really weird um thing in the market where everyone says that cryptogamia is in trouble and yet it's done better than rwa which people keep talking about I mean social F right like um farcaster did that ridiculously large round earlier this year and numbers are odd um deepin I think is having a little bit of a moment because of salana right so a lot of the salana flows flow into deep in or there's a tension in deep in but it hasn't it's performed like sort of like in line with gaming um and so don't believe the the I guess the opposite of hype don't believe the fud when people say that crypto gaming is some uniquely underperforming category it's not like crypto you're fundamentally fether to the market and the beta is just such a strong component of returns especially in the short term um and that matters more really than than than sectorial performance at this point um the majority of gaming tokens have struggled um the majority of crypto

tokens have struggled um the only three or the you know three of the largest ones have been super um Ronin and immutable um all three of them are in our portfolio um super has this uh it's a legacy token it has a ton of liquidity it's on binance um it has a very popular founder that is able to grab a lot of attention um and what super has um is it's um it's effectively uh uh uh marketing right like a lot of people want to be part of the super ecosystem because they want to have access to Elliot and all the other front people of that ecosystem pushing them for user acquisition right and so there's a lot of attention on super is something that captures a disproportionate share of audience attention um you have Ronan um someone made a you know I think Ronan is worth spending a minute or two um on you know Ronan has been in this really really impressive Journey it was like one of the largest hacks or the largest hacks in crypto ever um someone told me the other day that if you want to um fix any any sort of um if you want

to build attention and you want to build love for your chain you should hack itself and then solve it like Ronan did because then everyone will like think that you have their back like Ronan did to be fair it was amazing that they were able to solve that hack I think it's interesting to analyze Ronin in context with IMX because they're approaching gaming in very different ways um and we will have to see what works better over the long term um but Ronin acquired a lot of people with axi right like I think what's interesting with Ronin and with axi is um and I've said this to Alexander at Ronin um you know axi is not a particular amazing game um and I think a lot of people will just say that like axi sucks or axi sucked and they'll stop there and what they won't give credit to Ronin is the fact that they were able to get that audience that came for axi hold them through the Ronin ecosystem and now they're able to use that that same audience to push other tokens and to push the rest of the ecosystem which follows these parallel in sort of broader gaming infrastructure

where for example you know today people talk a lot about Unreal Engine but Unreal Engine is about Gears of War and fortnite and all the the content that came before it steam the biggest web 3 or the biggest game store in the world exists because epic was trying to distribute halflife and Counterstrike and DOTA um and the other products there right and so they acquired these large audiences and then they productized something in in the in their infrastructure offering and now they're known primarily as infrastructure companies or or a lot as infrastructure companies and um axi did that with Ronin now what they have continued to do and why they keep generating I think disproportionately good outcomes for their games is they are a permission chain um you don't just go and build on Ronin um for a while they only had sort of like this highest tier of of of support and partnership so you know the the biggest second outcome after axi they generated was pixels now why does pixels work um without getting into the game you have an audience that is um um burnished by the experience of the hack

and they're Loyalists and they're waiting for the next thing for Ronin Ronin comes out with pixels and they say here is the second axi and everyone's like oh my God like the new thing for Ronin and they go there and like like now axi has some of the highest or um pixels has some of the highest daus in crypto gaming um and they they'll keep doing it right like we have seen them approach some of our portfolio companies with very much that pitch of like you can be the third generation like axi was gen one pixels was gen two like we're now looking for Gen 3 um and so it's curated they very much believe in publishing they believe in like helping you as much as you can with like a super high touch approach and now they launched Forge which is an entry-level program into Ronin um where they give you a little bit of support but not as much support now the question with that is how does it scale um usually you would expect B2B if you think about like a B2B SAS product in the web 2 World um you would have thousands and thousands of clients giving you a little bit of money and so we need to think about a model for how a chain um can can successfully monetize at multi-billion

Dollar valuations when their approach is permissioned and handheld and perhaps it it struggles to scale um but so far it's done very well and and we hold it in the portfolio and we think it's it's fundamentally interesting for where we are right now um immutable on the other hand has about 400 games um I hate that Sor is there because he doesn't correct me if I say something wrong 400 games 430 games 300 of them have received some type of VC funding okay and then about 100 50 of them have received some typee of support from immutable Grant or otherwise not bad all right so that's where they are and what they believe um is it's a power lws business they don't want to be in the permissioning curation business they want anyone to be able to build on immutable because once you know they basically don't want to be editors or curators right so once something hits um a lot of audience will flow there and that's a better way than than just them deciding hey we want this game or that game or that game so immutable is a Ro on the other end um it's very easy to

see how it scales and how it works at that one to2 stage and now what they're spending a lot of time on is on that one like the zero to one stage of like how do you go and how do you support how do you find the best balance between publishing or not really publishing but trying to drive more unique outcomes to the assets um while not losing perspective of the fact that they want to be an open permissionless chain that is easy for anyone to build on versus a curated product um but those are the three things that have done well the all three of them are infrastructure Ronin and immutable are more explicitly infrastructure super um is is like marketing and and and and something else um so and and for those of you who who were here for kefir thing earlier today um one thing that I think we learned and and and we certainly encourage our portfolio to pay attention to is when people launch their tokens this year has been the biggest driver of success for how those tokens have done um I think you know in a bare Market in

a quiet Market a lot of people pull back from um from from from being ready to launch a token right and so even on our side um the amount of companies that started actually actively working on a plan to launch a token once q1 got hot really spiked and some of the best results I think the best results that we had in terms of token launches were the companies that had already plann for a whole token launch process they just hadn't pushed it and then as soon as the market got hot they could be the first in line to a good centralized exchange listing um they already had the community they already had sort of like the white paper and so when you launch the token is like one of the things that matters the most today I think over the long term the market should should weigh towards or tend towards fundamentals um but in the shortterm timing is the biggest thing and so for those of you that think about tokens I think ke for gave great advice which is always be ready even if you're not publishing it if you're not doing like that that public push of hey um here's the white paper and point and whatever else you

should be ready to push it as soon as the market gets hot and it's something that we as investors I think are paying a lot more attention with how we we advise our portfolio companies um instead of just like sort of forgetting about the tokens when the market is hot and going 100% on product right like at some point I think you always have to be at least 10% M share allocated to the Token 20% M share allocated to the Token even if you don't think you're launching a token right now um we think that market participants are slowly starting to care more about fundament um I think there's growing discourse of the importance of liquid funds we know you know there's some large fund of funds in the space that are more and more focused in backing liquid managers and people are looking at liquid markets for this um um Venture like opportunity to get 10 20 30X on liquid tokens and the people that are coming into these funds there are former macrom managers in in in big platforms former long short analysts like these are people that have for a very long time dealt with fundamentals which goes back to I open which is like all these markets tend

towards efficiency over the long term the most efficient market in the world is like I don't know large cap equities at some level because that's like the one that has the most professionals and capital attached to it crypto is like one of the most inefficient markets in the world because you have le like less regulation um you it's like a newer Market um a lot of the people operating in that market are less experienced and if you think that crypto will succeed if you were fundamentally long crypto in a 20-year scale then you should expect crypto from an efficiency perspective to look much closer to equities in the next 20 years than it does to the market today and so that means that over some level of time the market will get more fundamental um so we are seeing to starting to see people care more about sinks and fets and like value acral and asking those hard questions um although what I will say is whenever there's um spikes in in liquidity or spikes in attention the meme coins rally too right so it's not a it's not a a perfect market and any way um and I think you

know you you you know you want to bet on things that don't change I think one of the things that doesn't change is the fundamentally speculative Spirit of human beings like human beings are just like degenerates deep down and they love to gamble and like when the markets rally like there's going to be a lot of gambling and a lot of like that going on but more and more professional Capital will be held and allocated by people who are trying to do a good job and are trying to analyze fundamentals and I think historically people have overemphasized narrative um and I think in gaming or in consumer apps a lot of times that drives an issue especially now I don't even if I have a slide on this here um it's um the centralize exchanges put a lot of pressure on people to show metrics in order to get the listing and if you're a game or if you're an app and you're just beginning um it's hard to have those metrics right and so you kind of have to build a lot of hype and you have to have big social accounts and this and that like versus fundamental product utility um and the the the hype ends up taking way more mind shareed than the the fundamentals

aspect of it and then when the market flushes and people get more careful um then everyone is like Hey where's the fundamentals and you don't know because you spend all your time thinking about hype um and so this is something that we think is important to think more and more about although we think there will still be these like large divergencies in the market especially in Bull markets or in times of higher excitement where non-f fundamentals greatly outpaced fundamentals and to be fair this happens in equities too right like spaxs like spaxs were down 90% just like crypto at one point last year because the majority of them just rode up a hype boom and then faded once the market shifted back to fundamentals and you see like nowadays even large companies way more EPS sensitive way more earning sensitive or or or sort of like looking at Cost structures and margins because the market has gravitated all around the world towards fundamentals versus hype and I'm sure it will change at some some point AS Global liquidity increases probably um so reasons to be optimistic for what's ahead so we've started seeing yield uh rate Cuts you'll see this yield

curve is actually like a weird shape so the way you want to see a yield curve typically looks is like this um short-term rates are lower than long-term rates um and right now the yield curve is still inverted historically inverted yield curves have generally preceded recessions the yield curve hasn't been inverted for I don't know like two years or something um so we're starting to see them come down we have not see them uninverted to respond to it um the FTX distributions are happening um I think that this is a a less clear point because there's one view which is their 166 billion about to come back into the market um but we know from a lot of people that they sold their claims to hedge funds in the bare Market at like 20 30 40 up to 90 cents in the dollar more recently meaning if I was a debtor um and and FTX owed me money I went to some hedge fund and they paid me 80 cents on the dollar and they took over that claim I think it's an underappreciated point in the market

that a large percentage of this $16 billion dollar will actually just crystallize gains for the funds that bought the claims and you're really not going to see $16 billion immediately flow back into crypto like $16 billion is going to flow into a chunk of that is going to flow into hedge funds um and then the ETF products continue to bring in passive flows so what we want is we want flows from people who don't look at short-term price action we want that level of support and ultimately like if you have these flows they dampen volatility um because maybe more active Market participants that are more emotional or whatever like you look oh my God Bitcoin is up I sell or I buy more is gener what happens um and then when it drops you sell more um like that's a lot of the behavior that exists in the market right but if you have someone who's just allocating 1% of their raia to crypto and they're not even looking like I have no idea when I last check my 401k and like that's the average behavior for people with 401ks um and so what happens is the more that that that flows shift to these passive

products the more that that dampens volatility as I mentioned though it takes time to be able to sell or to get these products through to compliance um and so now we're just beginning to see it um and people are actually getting comfortable through the compliance of whether it's like Black Rock On The Advisory side or any of these other wealth management organizations to go to someone and say hey you should have 2% or 5% or whatever it is of your wealth in crypto products so this this type of flow we think is one of the more optimistic things happening in crypto but it does take time for it to come and we're slowly slowly slowly seeing it happen um I'll go quick on private markets um yeah I'll go quick on private markets so uh bunch of funds are reaching the end of their deployment phase in dry powder um a lot of funds raised in 2021 and 2022 most funds deploy their capital in two-year periods a few of them deploy in 3 to four year periods um in general funds deploy faster than they say they will except us we're very good about that um and the the consequence of it right and that's

that's part of what's Driven a lot of the the sales uh of people selling tokens because people want to fund raise and they want to show returns they want to show DPI that's the name of the game right showing distributions um and I think that for the majority of vintages I mean we're already seeing it right like Paradigm raised like half of what they raised in their last fund um poly chain raised a little bit less like all these funds are raising between half and two-thirds of their last funds and so we should expect the next venture of crypto VC will be smaller than the last Venture of crypto Crypt VC um and that a lot of funds won't be able to raise um and so the Outlook from a private financing perspective you would expect less um less large rounds less competitiveness perhaps less things getting funded as dry powder ends and the next vintages of funds are a little bit smaller a little bit more discipline more Capital flows towards discipline managers versus YOLO managers um we have seen more and more companies get funded um but we have seen the the the check sizes go down um you see so so you see the average seed here

it fluctuates a little bit it was very wonky in 2022 q1 because that was like the last quarter before things went pretty bad for a while um but usually series seeds don't fluctuate too much you see this in web 2 markets as well um series a has a lot more volatility and I think a lot of that volatility is when people are bullish on year- term markets everyone wants a prge deal um and so everyone overpays or at least pays more for deals that they think they'll get quick liquidity on and then pays less for the C deals because they they want to prioritize Capital deployment towards liquid or near-term liquid opportunities um we've seen that in gaming um especially or as a category right these a little bit more um more spiky but it's fundamentally the same story um so series average series seed round in games has dropped or has been around from five to now 4 million um this matches up pretty well with what we're seeing I mean usually we'll do seed rounds between three and 5 million and we see series a rounds rounds between 5 and 10 million um 5 million is a low

point for series a arounds um these series a arounds require larger funds willing to deploy and willing to take risk um and there's less and less of them like you know what's what's happened a little bit with crypto gaming is you had the crypto funds come into gaming and get their fingers burnt trying to do content with no perspective for Content um and then they go sort of like hot and cold and gaming and like now a lot of them are doing telegram games and like doing these like silly clicker things and like okay whatever um and then you've also had the gaming funds try to do crypto and I frankly don't think they've done a particularly good job either for the most part because then when the bare Market comes they stop investing right so the crypto funds go hot and cold in gaming the gaming funds go hot and cold in crypto right now we're in a time where the amount of people deploying in gaming in particular in series a has decreased and especially this quarter or last quarter people got a little bit more cautious around the perspectives for a new term tge which in turn LED them to deploy less into series A in more like we've seen just a lot more of these series C

telegram games like that's probably the thing we've seen the most come across our desk recently um deal numbers remain consistent I thought was one more slide basically deal numbers are consistent right it's just check sizes that are going down and so there's still a bunch of companies getting funded they're just getting funded less money um key takeaways so keep track of the markets um we're always here to talk about the markets and you know we have a bunch of us that are terminally online to talk about the markets it's important it's important to have a perspective for for for where things are it's important to have a sense of timing and to be ready right so it's like there's always be fundraising not necessarily like always be trying to raise money right but always be trying to update investors always have a perspective on your tge have the token materials ready to go keep track of the markets for when the time comes um managing expectations I think the hardest thing with expectation management today is just the centralized exchange game you have to oversell expectations to one set of people because you need to get a good listing um but then you don't want to oversell it to the investors and you certainly don't want to oversell it to the market

to set yourself up for failure after you launch um and have a token plan um what can we do about it um Market guidance um we're always here informally for people to reach out to us oneone I think we'll try to do more of these Market sessions publicly right like versus just on the the the the private LP only part um investor database I think I don't know how many we have Jamie I don't know like 400 people in the investor database we have like we track 400 funds tagged by what they like to invest in their average check size um the strength of our relationship to them and for the companies that have worked with us as part of their fundraise process I think we've really been able to lean in um and um and help just get like a lot of Outreach I don't believe that anyone should have like oh first I'm going to reach out to like my favorite three investors and if they say no then I go to the next three all of us all of us investors talk to each other the last thing you want is like for me to hear about around and then I go ask a friend and they're like oh I heard it about it 3 months ago or there's still reason like that's like super super bearish right so you want our help I think in

going out to like everyone at once to drive as much fomo as much attention as possible so everyone knows everyone is looking at the deal and no one is incentivized to sort of sit by and wait for someone else um and introductions I mean the same point of the investor database um I think one thing that we did for the summit this year is we open it up to outside funds um I see a lot of my friends from other funds here in the audience um and it's something that that we're trying to be more helpful on just on time there you go um I can probably take like two three questions yeah you can clap let's do two any any any I'll I'll do do we have anything immediately after this or is it upstairs upstairs right yeah okay I'll do two three questions anything go

um the Amazon shareholder letters the compilation of the Amazon shareholder letters from the first letter for like the last 20 years anything else s oh you were just saying good job I thought you had a question thanks dog all right we're good thank you everyone for your time for