A16z chooses ‘worst time’ to invest heavily in crypto, analysts say

Analysts have said that venture capital firm Andreessen Horowitz, more commonly referred to as a16z, chose the “worst time” to invest heavily in its flagship crypto fund.

The fund was launched in 2018 and gained significant profit when crypto prices soared in 2021. Data showed that a16z’s crypto investments went up to 1,000 percent as several crypto tokens reached their all-time highs. Following the growth, the firm launched more crypto funds worth $2.2 billion in June 2021 and May this year.

Wall Street Journal, however, reported that a16z had lost 40 percent of its investment in September 2022. A16z’s decline was more significant than other venture capitals, which typically lost around 10 to 20 percent.

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Several factors contribute to the slump, including the ongoing crypto winter, lower demand for crypto products created by a16z-backed companies and increased regulatory enforcement.

The venture capital also lost almost $3 billion of its stake in Coinbase following the exchange’s declining price in the Nasdaq index. A16z invested heavily in Solana, which raised more than $314 million in private sales last year. In 2022, Solana’s value dropped by around 80 percent.

As a result of the slide, the venture capital limited its involvement within the crypto market in the third quarter by participating only in nine crypto startup projects, as opposed to 26 projects in the last quarter of 2021.

Chris Dixon, a general partner at a16z, said he was not worried about the current market situation. According to Dixon, the bear market provides an opportunity to invest in more crypto projects.

“What I look at is not prices,” Dixon said. “I look at the entrepreneur and developer activity. That’s the core metric.”.

Although 2022 is not the first winter in the crypto industry, the market has grown significantly compared to the last winter between 2018 and 2020, leading to a more profound impact. The 2022 bear market caused crypto companies to cut spending by laying off employees and reducing other operational costs.

Several renowned companies, like Celsius, filed for bankruptcy protection. Many executives from major crypto companies also resigned from their positions. Among the most recent ones was Alex Hoeptner, who left his post as a CEO for BitMEX.

Venture capitals retreat from crypto market in Q3

Many venture capitals, not only a16z, limited their participation in the crypto market in the third quarter. Data from Cointelegraph Research showed that the venture capital inflows to the crypto industry had fallen by 66 percent in Q3 to $4.98 billion. In Q2, there were 621 deals between venture capital and crypto startups, but the number went down to 338 from July to September.

Despite the decline in funding, a survey found a 20.6 percent monthly increase in venture capital interest in September, to $1.64 billion. Combined with the growth in security token market capitalization last month, analysts believe there is no “overwhelmingly bearish sentiment” among investors.

Recent data also noted that venture capitalists had become more interested in investing in Web3 projects than in decentralized finance (DeFi). Out of 93 venture capital deals made in September, 31 were individual Web3 projects, amounting to $378.8 million. According to analysts, this may indicate that the bear market has reached the bottom of its cycle.

BTC, the largest crypto token, has also shown signs of hitting the bottom cycle of its bearish trend. BTC finally crossed the $20,000 mark on Tuesday after spending more than three weeks below.