Cryptocurrency market is “dominated by predatory VCs,” analyst says

Justin Bons, founder and CIO of Cyber ​​Capital, Europe’s oldest cryptocurrency fund, criticized the current dominant finance model in the 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 have made initial coin offerings (ICOs) effectively illegal, handing the entire early-stage market over to VCs.

Previously, Finbold reported another analyst shares a similar view on the topic. Miles Deutscher highlighted these new fundraising dynamics as one of the “fundamental flaws” preventing cryptocurrencies from reaching greater heights.

In summary, the two analysts seem to agree on the fact that the VC model penalizes retail and drives away small investors.

The Rise of VC Dominance in the Cryptocurrency Industry

In particular, 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 prices 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 cryptocurrency space. “Fundraising in cryptocurrency was 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-yield investment opportunities out of 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 purchase lottery tickets, they are prohibited from participating in potentially profitable early-stage cryptocurrency investments. He claims that this situation has turned the cryptocurrency market into a “VC boys club.” Notably, the IOC 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 payroll. Additionally, minimum investment amounts, often set at $100,000 or more, further exclude small investors from participating.

The Case for Democratizing Cryptocurrency Investment

The founder of Cyber ​​Capital strongly supports the return of ICOs, arguing that they have the potential to democratize investing for all. He points out that many of the major decentralized finance (DeFi) blue chips, including Ethereum (ETH), come from past ICOs. He argues that the ICO model was successful but was abandoned due to regulatory pressure.

Additionally, the analyst mentioned an inherent conflict between crypto tokens and crypto equity. 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 VC dominance, recent data suggests a slight recovery in cryptocurrency-related funding. According to CryptoRank, cryptocurrency projects have raised an average of $1 billion per month in funding rounds since March 2024. This represents a modest improvement over previous months. However, it fell short of the VC boom in 2021-2022, when projects were raising more than $3 billion per month.

Cryptocurrency 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 cryptocurrency market.

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

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