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When the tide receded, traditional VC began to enter Crypto

Emily

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Compliance exit channel opened, domestic Internet VC has been unable to ignore the encryption industry this blue ocean.

Interviews: 0x71, 0x29 beats BlockBeats

Writing: 0 x71 & have spent Rhythm BlockBeats

Even Jinshajiang venture capital in the understanding of Crypto.

Rhythm learned that the recent Jinshajiang venture capital, light speed China, Northern Light venture capital and other funds are paying close attention to the encryption track. Domestic Internet VC began to enter the bureau Crypto.

As early as April this year, Zhu Xiaohu, managing director of GSR Venture Capital, said publicly that "[for] myself, I can buy a small part of my assets into Bitcoin, as an asset allocation can be considered". "We can expect to see a real adoption of digital currencies, with Etherium-based lending such as DEFI (Decentralized Finance) starting to come on," he says.

Zhu Xiaohu, also known as Zhu Xiaohu, said on WeChat in 2018 that Jinshajiang and himself would not participate in any IC0 projects, saying that 99.99% of IC0 projects are malicious scams.

As VC all corners of the country "star investor", zhu Xiaohu ever succeeded in capturing Didi, hungry yao, small red book, reflect the high growth Internet industry such as the guest "unicorn", with the vision is original, "the Midas touch turns gold" and famous. From his skepticism of IC0 to his endorsement of DEFI, his change of heart on the concept of crypto innovation may be a reflection of the industry's growing maturity, and a hint of where the innovation vents will be in the future.

If think of the international top VC in recent years in the crypto industry swift and violent offensive, Jinshajiang and other venture capital funds are more understandable. After all, many of the world's top venture capital firms are currently in the crypto business.

In June, Andreessen Horowitz (A16Z), the legendary Silicon Valley VC who invested in Facebook and Twitter, was revealed to be working on a third crypto fund worth more than $2.2 billion. SoftBank, which has captured Alibaba, Didi and Keep, is also investing in a cryptocurrency fund in Brazil. IDG Capital, which has invested in more than 500 domestic Internet companies such as 360, Baidu, Tencent, Meituan and Pinduoduo, has never stopped its offensive in the crypto industry. Coinbase, Imtoken, Ripple and other well-known crypto projects have been captured by IDG Capital...

A more significant milestone was the successful listing of US licensed cryptocurrency exchange Coinbase on Nasdaq in April, which opened up new possibilities for domestic investors who had been skeptical about the industry's compliance.

With the end of the era of brutal growth of consumer Internet, the demographic dividend that the domestic Internet industry relies on for development is gradually disappearing, customer acquisition costs are increasing, traffic is no longer easy to get, and the mobile Internet market tends to be saturated. China's Internet VCs, who are used to soaring forward, now have to turn their eyes elsewhere.

When the compliance channel is opened, Crypto is an attractive blue sea that cannot be ignored.

The main army moved in.

Change always begins quietly. Suddenly, senior coin circle investors began to be favored by Internet VC.

Niu Fengxuan, founder of DapPreview, a decentralized Dapp data analysis platform that was acquired by Binance, the world's largest cryptocurrency exchange, has confirmed to Rongfang that he is leaving Binance to join Sky9 Capital, a venture Capital fund investing in Internet companies such as Dianping and Pinduoduo. Became a partner in the fund Crypto Track. Darong Cao, the founding partner of Cloud 9 Capital, is a former managing director and China founder of Lightspeed Ventures. It was he who first introduced Bitcoin to Zhao Changpeng, the founder and CEO of Binance, and then the story began.

Chen Yuetian, former partner of Chenhai Capital and founder of Huofeng Capital, who has captured SNH48, Miwei Media, Renren Video and other star projects' subculture and second yuan investor, has also started to invest in crypto projects in the past six months. He told the rhythm, now a number of well-known Internet VC are looking at the encryption track.

A Chinese first-tier RMB fund that has invested in Didi is considering setting up a dedicated Crypto fund, according to a source.

From the crypto industry recently announced the financing situation, also can see the interest of domestic Internet VC in the increase.

In March, ImToken, a decentralized cryptowallet, announced it had completed a $30 million Series B investment led by Qiming Ventures, Series A investor IDG Capital and new investors Breyer Capital, Hashkey, Signum Capital, Longling Investment, SNZ and Fosun Group co-founder Liang Xanjun participated in the investment.

In May this year, crypto financial institution PayPal Financial announced the completion of $40 million A round of financing, with investment from all kinds of Capital (Boyu Capital's early stage fund), Sequoia Capital China, Bai Capital, Tiger Global Fund, Dragonfly Capital and other top institutions. Among them, all things capital, BAI capital, tiger global fund is the first layout of Asian crypto asset financial services. Previously, PayPal Finance has completed two rounds of financing, including ZhenFund, Lightspeed China, Koyin Capital, NGC and so on.

On June 21, Amber Group, a global crypto financial service provider, announced a $100 million Series B funding round, led by China Renaissance Capital. Tiger Brokers, Tiger Global Fund, Arena Holdings, TRU Arrow Partners, Cloud Nine Capital, DCM Ventures and Gobi Partners, as well as Series A investor Pantera Capital, Coinbase Ventures and Blockchain.com.

In addition to Sequoia Capital China, light speed China and other institutions before dabping in encryption track, rhythm through multiple information to learn that source capital, easy capital, Jingwei China and other Internet venture capital funds are recently in understanding Crypto, revealed interest and intention in the field, the traditional VC is indeed in the encryption industry.

"However, the majority of Internet VC may still stay at the stage to see." Chen Yuetian said.

While institutions are coming in, the number of people in need may not be huge. "Today's Internet organizations tend to learn slowly. Their pace is not aggressive. An organization will only hire one or two VPs or above, as long as they can handle the entire track." "Said Frank Li, a partner at SNZ Investments.

In addition to their own projects, some Internet VCs have also chosen a more covert method -- direct investment in blockchain capital. At the beginning of this year, Sequoia China announced that it had become a strategic partner of the Dragonfly Fund, completing its investment in the Dragonfly Fund. According to the official introduction, Dragonfly (Dragonfly Digital Capital) is a venture capital fund focused on blockchain industry. Based on the long-term value investment strategy of VC, Dragonfly deeply focuses on blockchain technology research and lays out the global blockchain ecosystem by investing in early-stage projects.

Feng Bo, the founder of Dragonfly Fund, is a legendary senior investor. He once founded Lianchuang Ceyuan in 2005, and successively invested in a series of mobile Internet products such as Xunlei and PPStream. Later, he founded Dragonfly Capital in the early stage of blockchain industry. It has become a famous blockchain venture capital fund in China, and is known as "the strongest player in the currency circle" because of the four "great gods", namely, Shen Nanpeng, the global managing partner of Sequoia Capital, Vitalik Buterin, the founder of Ethereum, Wang Xing, the CEO of Meituan, and Zhang Tao, the founder of Dianping. Investment projects include 1Inch, Compound, Cosmos, DyDx, Near and other public chain and DEFI projects which have been on fire in recent years.

Photo taken online at the Dragonfly Crypto Summit 2019. From left to right: Nanpeng Shen, Bo Feng, Shen V, Xing Wang, Tao Zhang & NBSP;

In the cooperation press release, Shen Nanpeng said, "Based on the profound research and accumulation of blockchain underlying technology, the Dragonfly team continues to explore the innovative layout of products and technologies, and effectively works with resources to actively cultivate the entrepreneur ecology in the field, and has won a good reputation in the development."

A number of VC action at the same time, an encryption tuyere or will hit. However, the wind starts at the end of the green duckweed. To trace the reasons for the entry of Chinese Internet VC into the Crypto movement, it cannot be separated from another continent on the other side of the ocean.

VC FOMO, too?

FOMO stands for "Fear of Missing Out" -- the Fear of constantly worrying about something being missed or lost.

FOMO sentiment is common in the investment world, and VC sentiment is no exception.

For the past three years, while Chinese Internet VCs were still on the sidelines, "American institutions like A16Z [Andreessen Horowitz] and USV [Union Square Ventures] started investing in crypto projects very early and have been doing so for the last few years, Chinese VCs have fallen behind and are now desperate to catch up." Chen Yuetian said.

Among the many VCs that focus on crypto tracks in the United States, the most prominent star is A16Z, the top venture capital firm in Silicon Valley. With its ramp-up style and brash capital power, it expanded rapidly, snapping up phenomenons ranging from Facebook to Twitter to GitHub to Clubhouse. In the cryptocurrency world, A16Z was an early risk-taker. The company, which has a white paper on the wall of its Silicon Valley office, has been in the crypto field for seven years. It adheres to the investment philosophy of "long-term investment" and "all-weather investment". It has bet on Coinbase, Uniswap, Solana, Makerdao, Dfinity, Chia and other leading crypto projects. To become an undoubted industry "vane".

Complementary to the direction of capital, the past few years have seen breakthroughs in innovative projects in the crypto industry abroad. With the joint efforts of dozens of leading project developers around the world, Defi (Decentralized Finance) in the summer of 2020 and NFT (Non-fungible Token) at the end of 2020 have become important "motors" of this round of cryptocurrency bull market. With his innovative concept of decentralization, he has revolutionized the financial industry and the cultural and art industry, and successfully attracted the attention of mainstream people at home and abroad. In contrast, in recent years, domestic excellent encryption projects are still not too much.

U.S. venture capital funds are constantly taking risks that are being watched by their peers around the world, including China.

In China, although Crypto has long been associated with negative labels such as pyramid selling, money laundering and fraud, it still cannot erase the fact that this industry belongs to cutting-edge technological innovation, surging with massive funds and huge profits. Previously, the reason that blocked the entry of Chinese Internet VCs was simple: compliance withdrawal and industry expectations.

So the successful launch of Coinbase in the US was a very important trigger point. Despite the cumbersome licensing of crypto exchanges in the US, the listing of Coinbase, which has won a "grand slam" of compliance licences, means that exchanges in the US do not just exist in the dark, but can "stand in the sun" if they fully embrace regulation. It also provides a full compliance path for other U.S. cryptocurrency exchanges, and the future of U.S. cryptocurrency exchanges that embrace regulation, such as Binance.us, is limitless.

"Coinbase is showing traditional investors that crypto exchanges can be listed on Nasdaq very legally, which means investors have a legal exit mechanism." "Said Vanessa Cao, founder of BTX Capital.

We should know that exit mechanism, as an important link of venture capital, is the key to the cycle of venture capital to generate profits. In the absence of this link, the chain of venture capital will be disrupted, unable to realize investment appreciation and a virtuous cycle, and unable to attract more capital to join the ranks of venture capital.

In the traditional stock market, the exit channels of venture capital mainly include initial public offering (IPO), equity transfer, equity repurchase and bankruptcy liquidation. And previously in the currency circle, the exit mechanism of investors may only unlock the sale of tokens this way, it is inevitable to cut leek suspicion.

Even with the IPO exit mechanism, in the domestic policy background, compliance is still an important factor for Internet VC to consider. "At present, there are almost no domestic Internet VC to invest in Crypto Native (original block chain) projects. Most of them are still looking at Internet service block chain projects, such as Sequoia's PayPal Finance before investment." Niu Fengxuan told the rhythm, "at present most Internet VC is still in the equity."

"Fundamentals" are positive.

In addition to changes in the compliance exit mechanism, another important reason for Internet VC to choose to enter the market is the change in the "fundamentals" of the encryption industry.

When we look back 2020 years up to now the driving force of this new bull encryption, in addition to the support of the new capital and innovation constantly emerging, it is hard to ignore the gray (Grayscale), and other Wall Street financial institutions to connect encryption traditional currency and equity markets, and these innovative financial model provided is dependent on the us regulatory compliance environment.

Currently, U.S. cryptocurrency trust products are subject to SEC approval. GBTC and the ETHE, which are part of the cryptocurrency trust that has been burning since last year, are among the products that reported to the SEC. Twenty-three companies, including Rothschild Investment Corp, part of the famous Old Money family, and Ark Invest, founded by Catherine Wood, once held Grayscale bitcoin trusts.

Bitcoin and Ethereum's exchange-traded Funds are also subject to compliance reviews. A bitcoin ETF would give traders access to bitcoin trading through traditional stock markets, eliminating the need to buy and sell crypto assets on a cryptocurrency exchange. Notably, Canada has approved three bitcoin ETFs this year. The first of the approved ETFs traded more than 9.65 million shares on the day of its launch, bringing its first-day trading volume to $165 million, well above the average first-day trading volume for a new Canadian ETF.

Thomas Peterffy, CEO of Interactive Brokers, also said that due to strong demand from users of the platform to trade crypto assets, Interactive Brokers will launch its crypto asset trading service by the summer.

The growing overseas cryptocurrency compliance business is also giving rise to similar products in China.

In June, Internet brokerages Futu Securities and Tiger Securities announced plans to enter the cryptocurrency industry, with plans to launch cryptocurrency trading platforms, and said they were applying for cryptocurrency trading licenses in the United States and Singapore. "Overall, client enthusiasm for IPOs has dropped significantly compared to last year, and it seems that attention is shifting to the cryptocurrency market, especially after the Coinbase IPO," said Tiger Securities CEO Wu Tianhua on a conference call. Li Hua (Ye Zige), CEO of Futu Niuniu, also said that in the future, Hong Kong and overseas users could have a great opportunity to directly trade Bitcoin on the Futu Niuniu platform.

Whether it is Grayscale Trust Fund, Bitcoin ETF or crypto trading services of brokerages, they are all building a bridge between cryptocurrencies and the traditional equity market, allowing ordinary investors to get a legal window to buy cryptocurrencies through the stock market and brokerage services, and also allowing VCs to see more compliance investment opportunities.

Beyond building a compliance bridge with the traditional financial world, the value and promise of the crypto industry itself is beginning to be recognized by mainstream institutions.

The Defi wave in the summer of 2020 brought about a drastic change to the old label in the crypto industry. "Defi is the biggest app that has activated the crypto market," he said. "Lending, depositing, mining, and DEX [decentralized exchange] are innovations in the financial infrastructure that are accessible to Internet investors and are attracting more investors' attention." Chen Yuetian said.

Frank Li also sighed to Routine, "The birth of DEFI and NFT actually makes more and more Internet investors see the possibility of the crypto industry in the future, and they no longer think that the coin circle is a pure bubble."

As more and more large institutions around the world begin to "dance" with cryptocurrencies, the mainstream financial industry's impression on Crypto has changed, compared to 2017, the VC investment mentality has changed now. "This wave of many Internet VC want to look at the blockchain track in the long term, investment style will be relatively conservative, not so aggressive, more is thinking of legal compliance to long-term investment, this is a good phenomenon."

As a disruptive financial innovation, regulation and compliance are also an important part of the cryptocurrency industry. Each policy issue not only delimits the development boundary of the industry, but also provides a secure environment for the development and growth of compliance programs. At present, under the policy background of strict supervision of cryptocurrency and Bitcoin mining in China, how to carry out cryptocurrency business in compliance, not only to support fintech innovation, but also to safeguard the interests of ordinary investors has become the primary issue for domestic institutions to consider. With the opening of cryptocurrency trading platforms and licenses for trust funds and ETFs in the United States, Canada, Hong Kong and other places, VCs are accelerating their pace.

Change and invariance in the period & NBSP;

As we all know, the price of Bitcoin fluctuates periodically every four years due to the halving of Bitcoin. Influenced by Bitcoin price fluctuations, the cryptocurrency market also has obvious cycle changes of bull and bear markets. Over the past five years, the crypto industry has experienced two big bull markets in 2017 and 2020, in which many innovations continue to emerge.

Looking at the history of crypto industry, the most famous and deadly innovation concept in the bull market cycle of 2017 was IC0. Many domestic Internet VCs also participated in it actively, and most failed.

In 2017, under the innovative IC0 mode of Ethereum, a frenzy of IC0 was set off in China. Numerous project parties blossomed everywhere and a large number of Internet VCs entered the market for aggressive investment. According to reports, VC financing in the blockchain industry reached $1.88 billion and IC0 financing reached $4.18 billion in October-November 2017 alone.

At that time, it was joked that the Internet circle has been divided into two camps by blockchain: those who engage in chain, and those who do not engage in chain.

Market sentiment is extremely feverish, the famous "three o 'clock sleepless group" was born. It is reported that at that time, the group had gathered Shen Nanpeng, ZhenFund founder Xu Xiaoping, Longling Investment founder/Meitu chairman Cai Wensheng, Manzi Fund founder Xue Manzi, fast taxi founder/Pan City Capital founder Chen Weixing, angel investor Li Xiaolai and other investment leaders. Xu Xiaoping is also known for his declaration that "the blockchain revolution has come, and we will accelerate into the blockchain era".

But when the bull cycle ended in 2018 and the market entered a bear market, there was little left for investors and retail investors. As netizen CallMeWhy sharp comment, "domestic IC0 project is terrible to look at, no project can really create value, no project is really ground. A pesticide spray is also on the block chain, a novel is also on the block chain, live video is also on the block chain."

"In 2017, a lot of Chinese Internet people started to turn into the industry after seeing the wealth effect, making investments or projects. Some of them may not have done well in the old industry, but just saw new tuyere to speculate." Analysis by Frank Li.

It is safe to say that the domestic IC0 in 2017 has deviated from the fundamental meaning of the birth of Bitcoin and blockchain. Apart from Ethereum, most of the other domestic projects are suspected of "fraud" and have caused harm to investors. At that time, when the market was extremely feverish, the domestic policy of cracking down on IC0 could be described as "setting things right", which paid for the healthy development of the industry with pains and safeguarded the interests of investors.

Market bulls and bears in the conversion, is a test for many people, investors are no exception. When the tide went out, everyone looked around and realized they were swimming naked. "In 2017, most Internet investors left the market without making money, but not many people actually made money." Chen Yuetian told Rhythm when talking about the cycle. After a four-year hiatus, "everyone gradually forgot about the industry."

Time to the bull market cycle of 2020-2021, under the dual support of DEFI and NFT, the crypto industry has been recognized by more international companies, Wall Street financial institutions and even some small countries. This industry is no longer only labeled as "speculation", and more people believe that crypto industry can change the paradigm of future finance. And become an important infrastructure that opens the door to Web3.0.

In the compliance exit channel opened, the industry prospect is more clear, more domestic Internet VC began to change, "re-entry layout".

"This round of good domestic institutions began to change their attitude, began to see, in a steady way in the slowly moving forward."

Most obviously, they have realized the cyclical nature of the crypto industry and are buying into it. "Invest in a bear market and reap in a bull market, which is a theory accepted by all investors. In mobile Internet, AI, big data and other tracks, there are also cycles, but their cycles are longer." Frank Li told Rhythm.

If before "everyone a stick to Crypto all come down to the illegal kind of", now "everyone's attitude is slightly open some, think that the encryption industry is a choice of the track", Chen Yuetian analysis of VC psychological changes, "Crypto may be a new thing that can drive the change".

When the industry is no longer impetuous and speculative, and more and more institutions take a steadfast long-term view, specialization and refinement become the inevitable development path. "There are already mature post-investment services and market making institutions in the crypto industry, which also ensures the later growth and liquidity of the project." "Vanessa Cao said.

As the industry matures and institutions begin to lay out, how far is the future? "It's going to be six months or a year before we see a huge wave." Chen Yuetian said.

Once, no one would have believed that taxis could pull up in front of your home without waving their hands. Didi did it. Once, no one would have believed that food could be delivered to your door in half an hour, and Meituan did. VC investment has been behind the life-changing technologies of the past decade. In the next decade, what will change our lives will be blockchain technology, which is also driven by VC.

As Chen Yuetian said in his article "Spark Predicts 2021" : VC should be a very romantic and idealistic career.

We invested in companies that would make chips and the future of humanity out of sand. We invested in companies that would put computers on desks in millions of homes. We invested in companies that would enable the world to communicate in real time in every color and every language.

A VC should be someone who keeps the possibilities of change open to the world. Prometheus brought fire, VC was supposed to be the bearer of fire.

References: & NBSP;

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