In my podcast, I explore the many different facets of the world of high tech from development to marketing, to sales, to entrepreneurship, all with the goal of collecting key insights on startups for listeners to gain value from this knowledge-sharing. So, what did I discover this week?
Cryptocurrency markets have tanked. NFT markets have gone down dramatically. As a matter of fact, a recent report showed that NFT trading is down nearly 99% since its May peak. And, the bullish traders and investors seem to be retreating, even if it is ever so slightly.
What are we witnessing, is it a crypto winter, apocalypse, or what?
Tomer Niv, Crypto Investor at Entrée Capital, sees this market ebb as a necessary step in the industry’s growth. It can be hard to forget that cryptocurrencies are not even two decades old, and when people see markets turning over this drastically, it can create great feelings of uncertainty. Even more, it can create feelings that this may not be ‘coming back’. Nonetheless, the Web3 industry continues to gain prominence and Tomer, like many savvy investors, emphasizes that the time to get in is - now!
Hype - It’s Not a Sustainable Asset
First and foremost, when it comes to crypto, Tomer makes a very distinct difference between the impact the technology and the inevitable hype, or even more so, ‘disruptive-labelled hype’ has on the market. In many ways, hype always surrounds burgeoning fields, because the technology brings with it the prospect of new opportunities and achievements. At the same time, it also brings with it people who aim to capitalize on a naive or flat-out ignorant understanding of the technology, which is a lot of what we are seeing now with the deflation of the market. Tomer adds that “there is always a pendulum movement between hype and infrastructure, like in the ICO (initial coin offering) era, there was a lot of hype and scams, but it created a movement towards Uniswap, the most popular decentralized exchange, which is a major player.” When you look at Tomer’s example of Uniswap, he is exactly right.
People may have been turned off by the inflated projects and scams during the ICO-era of crypto, where new currencies were going live at a very high frequency, with unclear roadmaps, and it was hard to keep up with the coins being minted. However, the people who turned away were looking to make money quickly, most likely did not understand the full technology, and were dissuaded when the hype deflated. You can see similar examples even in more traditional investment situations.
“[Hype] leads to adoption and some type of discourse, but then other players come and make the more robust, sustainable business models,” Tomer makes a point of highlighting, “and hype is not sustainable but NFT, for example, as a technology is still very important for many use cases.”
Markets Tank, Time to Innovate
The NFT market, which has largely been propped up by hype and has basically tanked, is going through a sort of market correction to weed out the hype, if you will. The correction will most likely be followed by those who understand the strength of the NFT economy and the use of NFTs to create ecosystems and processes. Like with Uniswap, they will leverage the power of a growing NFT infrastructure to create new businesses.
These pioneers understand the potential of disrupting formal institutions’ hold on banking and money. As with the NFTs, this pattern will most likely be repeated in cryptocurrency and other Web3 projects as well. Additionally, those who focus on developing the infrastructure for these industries understand that now the ecosystem is ripe for such an innovation, even if the market looks murky.
“It can’t be a crypto winter when the biggest banks in the world, like Citi, are hiring DeFi risk managers or Alphabet is investing a billion and a half dollars in crypto projects,” Tomer mentions, “you have to look at the full picture, where the market is going.” In a sense, the negative market fallout has its own hype and believing that it is fully illustrating the situation would be a falsehood. Almost counterintuitive to reality, Tomer suggests that the price of crypto should be ignored, and while now may not be the best day for traders, for innovators the time is now to go and figure out the businesses that can make it big when the markets return. Because when they return, they will return big, and the price to enter will literally jump.
The 4T’s of Crypto Venture Investments
While the time may be now to go and start the new venture in crypto, NFTs, or the Web3 space, Tomer cautions against starting projects just to check off the box. First, he suggests you focus on areas you know. For example, if you are a musician or perhaps just into music, focusing on an NFT music startup would make sense or if you have a cybersecurity background, developing a crypto security solution could be the next logical step. Beyond that, Tomer makes it clear that the “technology has to be interesting, a good idea, and solve an actual problem.” For that, he uses the 4T’s that Entree Capital often relies on when evaluating potential investments: team, technology, timing, and TAM (total addressable market).
So how does that work?
The technology, of course, is very important. Showing mastery of a proposed solution, its viability, and its relevance to the market is key. This also bleeds into timing a bit, demonstrating to investors that the market is ready for your solution and the infrastructure exists to make it happen. Likewise, the team has to show that it not only has the industry know-how but the ability to build this venture, being able to handle the various ups and downs of entrepreneurship.
However, to truly impress, Tomer hints at the fact that you need to show a market that is actually hungry for the solution and one that is big enough to attract investors, especially since the market is still maturing. “Marketing to DAOs, for example, may be too niche at this time,” Tomer says, “so we need to see that your solution has a broader market.”
Nevertheless, Tomer stresses that anyone can and should get into the crypto, NFT, and web 3 space. It does not matter your previous familiarity with the industry, since after all, it is growing. Also, sometimes it is those who come from outside the industry that have the most innovative ideas for it. So, what are you going to do, start the next crypt unicorn?