Crypto is dead: Why did the world's most famous VC just bet big on it?

When the world’s most famous VC firms move you should pay attention. a16z is the firm most synonymous with Silicon Valley, big tech and venture capital. Now they’re coming to crypto with a $300m Fund. If crypto is dead, then maybe now crypto is much much more interesting than it was 6 months ago. After the winter comes the spring…

a16z

Andreesen Horowitz (a16z) are arguably the most well known Silicon Valley venture capital firm. The a16z podcast is a gateway into tech, and their investing track record is first rate. They're early investors in Facebook, Twitter and Airbnb. For the past decade their three core technologies were mobile, cloud and social. Yet at the time there were real doubts about if these companies would ever be profitable or be taken seriously as more than a toy. Since 2013, a16z has been an investor in crypto, famously as a lead investor in Coinbase with many of its partners on the board of that organisation. They also invested in Ripple and Openbazaar among others.

Union Square Ventures

Another major Crypto and Blockchain bull is Union Square ventures who are putting a lot of money into the sector and famously consider crypto a potential trillion dollar industry.

I think people are seeing the winning blockchain here might be worth a trillion, or a couple of trillion dollars...It’s not at all crazy to think that - Albert Wenger USV Capital Partners

Crypto Winter is Coming

The timing of these moves is interesting. After a historic run where Bitcoin moved from $1,000 to $19,000 through 2017, it’s dropped by more than 4x down to ~$6,000. For many this signals Crypto was all speculation all along, and that no good can ever come from crypto... ‘Winter’ in this instance is defined as the time at which everything feels so cold you can't imagine summer. This is based on the experiences of Bitcoin and crypto traders who in January 2015 saw Bitcoin below $200 and couldn't imagine it ever coming back. Since the beginning of 2018, crypto has just entered its second major winter, but a16z isn't worried. It's now fashionable to hate on crypto, which would be exactly the right time for smart money to enter.

But what's the goal here?

Software primitives are essential to create other components which can be built on top of it. Trust is a new form of software primitive which is best made apparent in digital money, Bitcoin is the obvious example. But the most obvious example isn’t the only one. Other components can be built off of trust, like smart contracts. Ethereum and Ethereum-like platforms mean you can create application-specific currencies, digital property rights and open financial instruments. This trust element enables us to build new services at web scale, such as value transfer, digital goods marketplaces, tokenising assets and more.

Crypto’s Inflection Point in Time

Crypto is early, not very widely used (around 10% of Europeans have invested in crypto) which is still not ‘chasm crossing’. In addition many developers write off blockchains as slow, they have traded off speed to provide new capabilities. This is not dissimilar to how early smartphones traded off speed for portability and new sensors. One of the founders of a16z wrote in 2010 that the next big thing starts off looking like a toy. The fact that so many developers and large companies are saying exactly that about crypto is actually a signal rather than noise. But, perhaps it’s Steve Wozniak who said it best:

Blockchain could be a bubble, with companies going belly-up at the same rate as the dot-com era. But the risk could pay off for investors who get in early, and spread their bets. - Steve Wozniak

Maybe it's time to pay attention. We’re building propositions for organisations big and small to take advantage of all of this opportunity. Join us, or get in touch at hello@11fs.com.