\nCan VCs game crypto out of this downturn?<\/br>
\n2023-01-20 22:24:35<\/br><\/p>\n
Welcome back to Chain Reaction.<\/strong><\/p>\n Last week, we looked at Musk holding onto doge. This week, we\u2019re talking about where all of this crypto VC money is possibly gonna go.<\/p>\n To get this in your inbox every Thursday, you can subscribe on TechCrunch\u2019s newsletter page.<\/a><\/p>\n A weekly dispatch from the desk of TechCrunch crypto editor Lucas Matney<\/a>:<\/em><\/p>\n The reality is that the dreams of web3 investors and founders are facing a bit of a jam \u2014 a crypto downturn generally means less hype, fewer conversations between friends and generally less organic consumer onboarding to consumer experiences. This is far from ideal for VCs who saw a consumer web dream within grasp, but fortunately they\u2019ve got some deep pockets thanks to recently raised mega funds with crypto bets as their sole focus.<\/p>\n Still, it\u2019s a rough time for consumer crypto\u2019s core audience though, with recently minted acolytes down bad and many likely discouraged from sinking more time, money or effort into new web3 projects. The question becomes how to put this VC money to work in a bear cycle; plenty will take the period of reduced attention to dump into infrastructure and the \u201cpicks and shovels\u201d toolsets. Others might go insular, backing consumer projects that are further disconnected from the broader worlds of crypto but expose users to synthetic economies, wallets and digital goods, an arena served particularly well by crypto-infused games.<\/p>\n Gaming does seem like a great consumer beachhead for crypto and I\u2019d expect plenty of these dedicated crypto funds to dump a significant quantity of their funds into studios and platforms pursuing this. There are a lot of substantial challenges, including generally negative user sentiment and getting platform buy-in \u2014 given that NFTs are still treated with a high-degree of hostility by app stores and gaming platforms.<\/p>\n The self-contained worlds of gaming titles with dedicated tokens disconnected from the more self-referential corners of crypto may be the easiest place to find new eyeballs. And as customer acquisition costs across the board climb, VCs may be more willing to subsidize customers directly as part of user acquisition, returning to the gig economy days of VCs bribing new users to sign up.<\/p>\n It\u2019s been a weird bull cycle for crypto gaming. While plenty of money flowed into play-to-earn titles and pixelated SNES-quality DeFi-infused games, it\u2019s fair to say that there wasn\u2019t anything that emerged that was actually good. Most games over-indexed on profit and clearcut ponzinomics that juiced growth to the most extreme ends without a concern for stability. Great games take time to build, and fun games take a level of user concern that\u2019s hard to optimize for when you\u2019re trying to maximize near-term profit on both ends of the deal.<\/p>\n We thought winter was already here for crypto, but U.S. regulators just made it seem a lot colder. First, the U.S. Department of Justice arrested three people, including a former Coinbase employee, for alleged insider trading<\/a> on the exchange. Then, the Securities and Exchange commission charged them with securities fraud<\/a>, arguing that several of the coins they had traded were, in fact, securities \u2014 a designation that comes with a whole host of rules that Coinbase and other exchanges haven\u2019t necessarily followed. We shared our unofficial thoughts on how the laws might be interpreted and what this could mean for major crypto exchanges (more on this in my \u201cthis week in web3\u201d section below, too).<\/p>\n We also talked about the situation involving bitcoin that might finally be enough to turn Elon Musk stans into skeptics and beloved video game Minecraft cancelling NFTs<\/a>, at least for the time being. Our guest was David Nage, a portfolio manager at digital asset management firm Arca, who helped us make sense of the ongoing mayhem<\/a> in the markets.<\/p>\n Subscribe to Chain Reaction on Apple<\/a>, Spotify<\/a> or your alternative podcast platform of choice to keep up with us every week.<\/p>\n Where startup money is moving in the crypto world:<\/em><\/p>\n A weekly window into the thoughts of web3 reporter <\/i>Anita Ramaswamy<\/i><\/a>:<\/i><\/p>\n After a former Coinbase employee and his two associates were arrested this week at the behest of the U.S. Department of Justice for alleged front-running on the crypto exchange, they were hit with securities fraud charges by the SEC. Shortly thereafter, Bloomberg revealed that the SEC had already been investigating Coinbase for potentially allowing securities to trade on its platform without the adequate filings and disclosures.<\/p>\n Interestingly, the SEC\u2019s charges, at least in the securities fraud case, hinged on several pretty niche coins. The token they chose to go after say just as much, in some ways, as the ones they didn\u2019t. Regardless, Coinbase is pretty upset and says it vetted all the tokens on its platform before listing them to make sure they aren\u2019t securities.<\/p>\n If Coinbase gets nailed in this suit, it\u2019ll have ripple effects throughout the industry. Already, other major crypto companies are facing similar charges, including Binance, Ripple Labs and Yuga Labs, either in the form of disgruntled investors filing lawsuits against them hoping to get them in trouble for illegally selling securities or in the form of investigation by U.S. regulators, as is the case with Coinbase.<\/p>\n Until we know more about how regulators and legal experts are likely to treat each individual token, it\u2019s worth examining what the current securities laws even are and how they might apply to Coinbase. That\u2019s exactly what I did in my latest piece with Alex Wilhelm for TechCrunch+, in which we took a deep dive into the four-part \u201cHowey Test\u201d to try and determine whether the SEC or Coinbase has a stronger argument here.<\/p>\n Here\u2019s some of this week\u2019s crypto analysis available on our subscription service TC+ from senior reporter Jacquelyn Melinek<\/a>:\u00a0<\/em><\/p>\n Crypto valuations may sink until September as VCs play a waiting game<\/strong><\/a> Investors focus on DeFi as it remains resilient to crypto market volatility<\/strong><\/a> Thanks for reading! And, again, to get this in your inbox every Thursday, you can subscribe on TechCrunch\u2019s newsletter page.<\/a><\/p>\n<\/p><\/div>\n <\/br><\/br><\/br><\/p>\n![\"\"](\"https:\/\/i0.wp.com\/techcrunch.com\/wp-content\/uploads\/2022\/04\/chain-reaction-newsletter.jpg?resize=1140%2C321&ssl=1\")
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\nmaybe, it\u2019s all a game?<\/h2>\n
\nthe latest pod<\/h2>\n
\nfollow the money<\/h2>\n
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\nthe week in web3<\/h2>\n
\nTC+ analysis<\/h2>\n
\u201cTons of capital has been raised across the crypto industry in recent months, but there has been a noticeable pause in deployment. That might change in the coming months. As it\u2019s taken longer to close crypto VC deals, valuations across the industry have dropped, according to\u00a0David Nage<\/a>, venture capital portfolio manager at\u00a0Arca<\/a>.\u201d<\/p>\n
\u201cAs many subsectors in the crypto market continue to take heavy hits from recent volatility, some market players see decentralized finance (DeFi) as resilient and gaining interest despite the negative macroeconomic environment. Centralized financial institutions are similar to traditional firms, with people running their operations and managing their funds. In contrast, DeFi protocols use technology \u2014 not people \u2014 to execute services through things like smart contracts.\u201d<\/p>\n
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