Misguided Comparison of Crypto to Tech
There have been many comparisons made between early crypto companies with early tech companies. Cryptocurrency projects love to compare their project to companies like Uber, Airbnb or Apple. This framing is useful for venture capitalists to lean into when soliciting funds from traditional investors. Who wouldn’t want to own a stake in the next Apple? In reality, this comparison is flawed in several ways. First, the mere fact that these cryptocurrencies are purported to be decentralized — and that their future and mission are supposedly not driven by any single individual or group — makes the comparison to a centralized tech company irrelevant. Secondly, the fact that these cryptocurrencies print their own money out of thin air is not comparable to actual tech companies that must create value in order to attract capital.
Higher Valuations of Crypto Companies versus Bitcoin Companies
When venture capitalists examine the cryptocurrency ecosystem, they see companies, like Coinbase, ConsenSys, Crypto.com, Binance and FTX, that have achieved multibillion dollar valuations. They then compare those companies to Bitcoin only–focused companies, which typically have lower valuations, and quickly deduce that, in order to generate the highest return on their capital, they must need to invest in “crypto” companies and not Bitcoin companies. This is flawed, high time preference fiat thinking. Low time preference Bitcoin thinking goes something like this: Bitcoin will one day be the world’s reserve currency, therefore, companies whose mission supports Bitcoin will thrive. The fact that there is less fiat-minded capital allocated to Bitcoin companies is actually a plus, as it enables mission-aligned capital to occupy the space on Bitcoin company cap tables. And finally, the fact that Bitcoin companies have smaller valuations than “crypto” companies means that the market has not accurately priced in the chance of a hyperbitcoinized future world.
Conclusion
There is a massive amount of fiat being allocated further and further out on the risk curve in order to attempt to generate returns higher than the rate of monetary inflation. Much of that capital is finding its way into the “crypto” ecosystem. Unfortunately, due to flawed comparisons, fiat thinking and an underestimation of Bitcoin’s future, the vast majority of that capital is being allocated to “crypto” companies and not to Bitcoin-focused companies. Fortunately, the winds may be starting to shift.
As bitcoin continues to appreciate, more and more Bitcoiners have started to allocate capital in support of Bitcoin companies. While still small in comparison to “crypto,” we’re starting to see more Bitcoin-focused venture capital firms being formed. The likes of Ten31 , Trammell Venture Partners , Bitcoiner Ventures and Lightning Ventures are joining more established players such as Stillmark , Mimesis Capital and Fulgur Ventures . Additionally, many individual Bitcoiners (myself included) utilize their own capital to invest directly in support of Bitcoin companies.
As bitcoin continues to suck in capital from inferior stores of value such as real estate, stocks, bonds, gold and collectibles, more and more wealth will be transferred from high time preference fiat thinking investors to low time preference Bitcoin thinking investors. As that happens, Bitcoin-focused companies stand to benefit from both a larger user base, as well as increased amounts of investable capital in the Bitcoin ecosystem. One day in the not-so-distant future, we will see Bitcoin companies with valuations orders of magnitudes higher than “crypto” companies. What a joy that will be.