Crypto market is ‘dominated by predatory VCs’, says analyst

Justin Bons, founder and CIO of Cyber ​​Capital Europe’s oldest cryptocurrency fund, criticized the current market dominance finance model in cryptocurrency market based on fundraising from venture capitalists (VCs).

According to Justin Bons, cryptocurrencies are currently dominated by “predatory VCs”. This situation, according to Bons, arises from regulatory pressures that made Initial Coin Offerings (ICOs) effectively illegal, handing the entire early market to VCs.

Formerly Finbold reported another analyst sharing a similar view on the topic. Miles Deutscher highlighted these new fundraising dynamics as one of the “fundamental flaws” preventing cryptocurrencies from reaching higher ground.

In short, the two analysts seem to agree that the venture capital model punishes retail and drives away small investors.

The Rise of VC Dominance in Cryptocurrencies

Notably, Bons argues that the current state of affairs in the cryptocurrency market is far from ideal. He points out that VCs often enter into “pre-pre-pre-sales” at deeply discounted prices, only to sell to retail investors at inflated rates later. This practice, he argues, is unfair and exploitative.

The analyst emphasizes the need to bring back ICOs, which he believes have democratized fundraising in the crypto space. “Fundraising in crypto used to be democratized; anyone could participate on equal terms,” Bons says.

He further explains that the current system, with its stringent requirements for accredited investors, effectively puts high-return investment opportunities out of the reach of retail and less affluent investors.

Regulatory obstacles and their consequences

Furthermore, Bons highlights the irony of current regulations, noting that while poor people are allowed to buy lottery tickets, they are prevented from participating in potentially lucrative early-stage cryptocurrency investments. He argues that this situation has turned the cryptocurrency market into a “VC boys’ club.” In particular, the CIO compares this to what is seen in traditional stock markets.

Regulatory requirements, such as extensive Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures, often require lawyers and accountants on the payroll. Additionally, minimum investment amounts, often set at $100,000 or more, further exclude smaller investors from participating.

The case for democratizing cryptocurrency investments

The founder of Cyber ​​Capital makes a strong case for the return of ICOs, arguing that they have the potential to democratize investing for everyone. He points out that many of the major decentralized finance (DeFi) blue chips, including Ethereum (ETH), originated from previous ICOs. He argues that the ICO model has proven successful but was abandoned due to regulatory pressure.

Furthermore, the analyst mentioned an inherent conflict between crypto tokens and crypto capital. When both exist for a project, there can be a battle over revenue streams, potentially leading to rent-seeking behavior by VCs that can weaken the token economy.

Despite the challenges posed by venture capital dominance, recent data suggests a slight recovery in crypto funding. According to CryptoRank, cryptocurrency projects have raised an average of $1 billion in funding rounds per month since March 2024. This represents a modest improvement over previous months. However, it falls short of the VC boom of 2021-2022, when projects raised over $3 billion per month.

Crypto Fundraising Trend. Source: CryptoRank

Conclusion: A call for change

In conclusion, Justin Bons calls for a reassessment of the current regulatory landscape. He argues that banning retail participation in early-stage investments only leads to their exploitation at a later stage. The analyst believes that convincing regulators to allow retail investors to participate on an equal footing is crucial for the healthy development of the crypto market.

While acknowledging the important role VCs play in funding early-stage projects, Bons argues that regulation has artificially pushed their prominence to damaging levels. He advocates a return to a more open and transparent investment model, where knowledge, rather than privileged access, determines investment success.

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