How much have VCs’ market expectations for this year changed after Bitcoin’s trend reversed?

The sudden rise of BTC has disrupted the plans of many investors. While regretting missing out, everyone has started to think: Will Bitcoin continue to rise this year?

Since the market entered a deep bear market at the end of 2022, people's expectations for the next round of market cycles have mostly been placed on the Bitcoin halving in 2024, and the market outlook in 2023 is not optimistic. Judging from the market performance at the beginning of this year, this seems to be the case. Although market sentiment has ushered in a "spring agitation", it is more about the rapid rotation of sectors and hot spots, and there is no sign of new funds entering the market.

Earlier this month, Silicon Valley Bank collapsed, and the ripple effect spread to the crypto market a few days later. USDC was run because its issuer Circle had deposits in SVB, and there was a significant decoupling. The market seemed to be sliding back into the freezing point. But surprisingly, the Fed's rescue came in time, temporarily alleviating the liquidity crisis in the banking industry. Then, Bitcoin ushered in a round of "violent rise" in the next two days, with a rare intraday increase of 20%. The sudden rise disrupted the footing of many investors. While regretting missing out, everyone began to think: Will Bitcoin continue to rise this year? In this regard, BlockBeats listed 8 questions that the market most hopes to get answers to, and solicited opinions from the following well-known institutional investors:

BMAN, ABCDE Capital. ABCDE was co-founded by Huobi co-founder Du Jun and former Internet & crypto founder BMAN, and is committed to investing in and supporting Web3 Builders;

Jason, Folius Ventures. Folius Ventures invests in, popularizes, and participates in building the Web3 ecosystem, and is committed to supporting Asia-Pacific and Chinese entrepreneurs;

Pima, Continue Capital. Continue Capital was founded in 2016 and focuses on investing in and incubating global blockchain technology, early-stage technology startups, and providing quantitative trading services;

Bill, Cypher Capital. Cypher Capital is a multi-strategy Crypto investment fund headquartered in the UAE, covering VC, secondary market, nodes, BTC mining and other fields;

Jerry, Synergis Capital. Synergis Capital is committed to investing in the next generation of early-stage startups and driving growth by activating its network of paradigm leaders.

BlockBeats Note: Most of the answers in this article are before March 24. A lot of unexpected events have occurred in the past week, and the price trend of Bitcoin has also changed significantly, which further highlights the insight of investors' views. The following are questions asked by BlockBeats and answers from institutional investors:

1. BTC has been rising for several consecutive days, and is poised to hit the $30,000 mark. What is your judgment on the direction of the crypto market in the second half of 2023? How long will this BTC bull market last?

BMAN – ABCDE Capital: The market has gone through multiple rounds of deleveraging. We have observed a large amount of institutional funds buying in the BTC range of $18,000 to $20,000. We tend to believe that the bottom has appeared and will not hit a new low. In the second half of the year, there will be multiple large projects launched on the test network. Next year, Bitcoin will be halved again. The market is still one narrative away from a bull market, just like the DeFi Summer in 2020, which is worth looking forward to.

Jason – Folius Ventures: I am pessimistic. The shift from tightening to easing is happening, but the price of risky assets and the possible return of inflation after easing may lead to the Fed making policy mistakes, and the actual explosion may cause the United States to enter a deeper recession. The market may price this in Q3. I prefer to work hard in the first half of the year and take it one step at a time in the second half of the year.

Pima – Continue Capital: Above $40,000, be cautious in the second half of the year.

Bill – Cypher Capital: BTC has been consolidating in this range for more than half a year since the LUNA incident in 2022, when it fell below $30,000. Since the LUNA incident was caused by macro factors that caused some funds to leave the market and thus led to the decline, if we can see more funds re-entering the market, we will have confidence in the subsequent trend of BTC. This SVB incident is the first time that bank stocks and BTC have completely different market conditions. We think there may be more such divergent market conditions in the future.

Jerry – Synergis Capital: The overall trend of the crypto market is highly correlated with the macroeconomic environment. The Fed raised interest rates by 25 basis points this time, and the market reaction was that the current round of interest rate hikes would end after the May rate hike. This is the first turning point from hawkish to dovish in this round of interest rate hikes, and it is also the result of "something broke" that we expected. Although the Fed is more hawkish than the market expected on the dot plot for the time being, this is also an expected means to maintain the loop before inflation comes down. In general, we believe that the peak of short-term tightening has passed, and the Fed will continue to ease the recent liquidity demand, so we continue to be optimistic about this round of bull market in the short term. As for how long it can last in the medium term, it mainly depends on how weak the US economic environment is in the second half of the year, and the inflation data of wages and non-housing service sectors with the strongest stickiness are used as a reference. In the long run, the main theme of the cyclical macro narrative has changed from the bottom up, and the dominant position of the US dollar and US bonds is being shaken. With the transformation of the new order under deglobalization, crypto assets have the opportunity to shine on the stage of this currency edge competition, but it will also be accompanied by continuous fluctuations.

2. Many people believe that the liquidity crisis is the main problem facing the crypto and even the global market in 2023. In your opinion, can the liquidity crisis be resolved after the Federal Reserve announced a rescue plan for SVB two weeks ago and a series of subsequent measures to improve liquidity? Has the long-awaited "reversal" node arrived?

BMAN – ABCDE Capital: Same as question 1.

Jason – Folius Ventures: It has not been completely resolved, but the market has roughly predicted the problems that may arise in the future, and the Federal Reserve will make a more relaxed choice due to this problem. Therefore, even if the problem is not completely resolved, I personally believe that risk assets will continue to improve in the first half of the year.

Pima – Continue Capital: The game between various parties puts pressure on the Federal Reserve, and liquidity is relieved in the short term; global confrontation has led to a reversal of the low-inflation global division of labor model of "cheap energy + demographic dividend low-end manufacturing + consumption". It depends on how the inflation rate in the second half, which is the least likely to fall, is reduced. The second half of the year is an observation window, and it is difficult to talk about a reversal.

Bill – Cypher Capital: It should be noted that the liquidity crisis of banks solved by the Fed’s BTFP plan is not the same as the liquidity of risk asset markets. The BTFP plan does not permanently remove assets such as bonds from the bank’s balance sheet, which is different from the previous quantitative easing. The cryptocurrency market has rebounded a lot after the bank’s rescue, and we should look at the market risk issue more forward-lookingly.

Jerry – Synergis Capital: We believe that SVB’s rescue plan and the continued interest rate hikes have confirmed the Fed’s determination to address short-term reserve shortages by using balance sheet tools, so we believe the reversal point has arrived and the peak of short-term liquidity tightening has passed.

3. In the past week, BTC has seen a rare one-day surge, but ETH has not seen much movement. How do you understand this market performance? Is it new capital entering the market, or is liquidity converging?

BMAN – ABCDE Capital: On the one hand, it is to avoid the flow of funds from bankruptcies into BTC, and on the other hand, the initial stage of market rise is the blood-sucking market of BTC.

Jason – Folius Ventures: BTC follows the decline of gold + long-term bond trading, while ETH follows Nasdaq and long-term bonds. BTC is generally underweight by cryptocurrency institutions. When risk assets rise again due to easing, ETH should outperform BTC.

Pima – Continue Capital: ETH had a rebound from $800 to $2,000, touching the long-term moving average; BTC has not had such a large-scale rebound, so it will make up for it this time.

Bill – Cypher Capital: Short-term fluctuations are difficult to explain. If you want to pay attention to price trends, there is a saying that goes, "When in doubt, zoom out." And it is also one-sided to only look at the fluctuations of ETH itself. For example, Arbitrum in the ETH ecosystem has been very popular recently, but this may not be immediately reflected in the price of ETH itself. In addition, if we compare the Crypto industry with traditional industries, then BTC is "gold" and other currencies are "businesses". In a sense, BTC has played the role of "safe-haven asset gold" in the past week.

Jerry – Synergis Capital: We do not believe that a large amount of external funds have flowed into the crypto market. After the FTX incident, the crypto market has been in a state of rotation and PVP. The rise of Bitcoin this time is mainly caused by the inflow of funds from stablecoins and other currencies into Bitcoin for risk aversion. Another part of the reason is that US regulators are likely to regard all cryptocurrencies other than Bitcoin as securities, resulting in a relatively lower security of Ethereum's value storage properties. Bitcoin has historically been regarded as a hard currency in the crypto world and a substitute for the traditional financial system, so the current narrative of the banking system being under pressure has also increased its performance. We expect that as concerns about the collapse of the US banking system subside, some funds will flow back from Bitcoin to Ethereum and other currencies with higher risk appetite.

4. If new funds do enter the market, will these funds entering BTC continue to flow into ETH or other public chain ecosystems, driving the growth of sectors such as DeFi and NFT? In which sectors will you make layouts?

BMAN – ABCDE Capital: We believe that there will be a rotation of capital sectors in the future, and we will deploy leading projects in each sector.

Jason – Folius Ventures: High probability. The existing sectors are not very resilient. I am still waiting for the application layer. You can follow the ARB short-investment fund flow.

Pima – Continue Capital: New funds will be diverted, and there will not be a general rise; I will personally invest in new public chains, L2, and ominchain.

Bill – Cypher Capital: Definitely. Cypher is not trying to be an ETF for a particular sector, so we will make layouts in various sectors. At the same time, we also look forward to entrepreneurs to lead us to witness the birth and growth of new sectors.

Jerry – Synergis Capital: Ethereum will usher in the Shanghai upgrade in April this year, allowing the unlocking of staked Ethereum. Although there may be some uncertainty in the price of Ethereum in the short term, we believe that this upgrade will greatly increase the number of stakes on the Ethereum network in the future, and at the same time benefit the price of Ethereum, so that the Ethereum/Bitcoin exchange rate will also be improved. This will further increase the network benefits of the Ethereum ecosystem, making the development of other public chain ecosystems more difficult. In terms of specific sectors, given the uncertainty of recent regulatory details, we are relatively cautious about investing in web2.5, especially in web3 enterprise services and permissioned DeFi tracks. As a relatively active creator economy VC in the industry, we continue to accurately incubate and invest in top teams in various parts of the entire value chain. In view of the return of liquidity, DeFi will also be a track we focus on, especially in decentralized stablecoins and option trading innovations.

5. In the short term, do you prefer BTC or ETH? What are your reasons?

BMAN – ABCDE Capital: We are optimistic about BTC in the short term. The crisis of bank bankruptcy has not been resolved yet, and funds will flow into BTC in the short term.

Jason – Folius Ventures: I am optimistic about both, but the narratives are different. I think both are suitable, but I personally don’t want to make a choice.

Pima – Continue Capital: This question should not be considered.

Bill – Cypher Capital: I personally am optimistic about BTC in the short term, because this is a migration of funds to "backed by math, instead of backed by centralized protocol" under the global macro narrative. Cypher's layout in the cryptocurrency market is long-term, and we are not so concerned about short-term market fluctuations. Both BTC and ETH ecosystems are innovative and active, and Cypher will actively deploy in both.

Jerry – Synergis Capital: Bitcoin has proven its special status and attributes in the blockchain world, but we should not underestimate the deflationary token economic model of Ethereum and the strong network effect brought by its ecosystem including the secondary public chain. The secondary public chain ecosystem helps Ethereum solve the expansion problem. At present, the most innovative projects are still built on EVM. If traditional enterprises want to enter the blockchain, they will also give priority to Ethereum L2. In contrast, Bitcoin lacks the many application scenarios that Ethereum has, and this gap may become more and more obvious in the future.

6. The Arbitrum airdrop has once again ignited the development of its ecosystem. Do you think the popularity of the Arbitrum ecosystem can continue in the long run?

BMAN – ABCDE Capital: The Layer2 war has just begun and will continue until ZK’s Layer2 project is launched.

Jason – Folius Ventures: Very healthy. It should be one of the most promising second layers. I think we can look more at the benefits that Axiom + EigenLayer can bring to the Ethereum ecosystem.

Pima – Continue Capital: Yes.

Bill – Cypher Capital: After Arbitrum announced the airdrop criteria and snapshot time, we did not see a significant drop in its on-chain activity data, which shows that users are sticky to its ecosystem. We are looking forward to seeing the further development of the Arbitrum ecosystem.

Jerry – Synergis Capital: Since Arbitrum was launched, the decentralized financial services DeFi and gaming sectors within the ecosystem have shown steady organic growth, even when its token airdrop expectations were uncertain. Arbitrum currently has the support of many partners, and its own protocols are constantly innovating, especially Stylus, which will have the opportunity to introduce a large number of developers who previously used Rust on Solana to the Arbitrum ecosystem, so we continue to be optimistic about the prospects of Arbitrum.

7. In addition to Arbitrum, projects such as Lens, zkSync, and StarkNet all have airdrop expectations. Which ecosystem will you focus on interacting with in the second half of the year?

BMAN – ABCDE Capital: I will experience the Layer2 ecosystem.

Jason – Folius Ventures: It will take time for ZK to land on the track. I personally think Scroll will be a dark horse. Also, SUI can be looked at in terms of App.

Pima – Continue Capital: I don’t interact much, but I can tell you about the projects that are worth interacting with: zkSync, StarkNet, Sui, LayerZero.

Bill – Cypher Capital: As an institutional investor, we focus more on long-term investments.

Jerry – Synergis Capital: We are optimistic about protocols that have made innovative progress in DeFi and web3 games. As for airdrop expectations, we will pay more attention to public chains that have received a lot of first-tier capital injection in the primary market, such as Celestia, Sui and Scroll.

8. Recently, with the emergence of Ordinals, "BTC ecology" has suddenly become a hot word. Traditional old projects such as Stacks, new directions such as issuing tokens and NFTs have received attention from outside the BTC OG community. But according to our observation, although the heat still exists, hyping tokens or NFTs on BTC is very complicated and primitive. Do you think that the "BTC ecology" is a flash in the pan, or a new trend that will exist for a long time?

BMAN – ABCDE Capital: BTC and PoW camps have always had a long-standing loyal community, and we believe and expect that an innovative ecosystem will emerge around BTC.

Jason – Folius Ventures: Stacks ecosystem takes time to develop. It is not suitable for short-term speculation. The real growth will have to wait until their EVM is launched, which will coincide with the 24-year halving of BTC. It should be the most resilient narrative in the entire market.

Pima – Continue Capital: At the end of 21, the Taproot upgrade was the main reason for all this. In the long term of 4 years, it may fail, but in the short term it is a proposition that is difficult to disprove. There is a market "expectation gap", which is actually the source of profit and deserves attention.

Bill – Cypher Capital: Any innovation is not so mature in terms of UI/UX in the early stage. Cypher has always been positive about technological innovation. Cypher participated in the auction of TwelveFold and was lucky enough to win an Ordinals. We welcome entrepreneurs with ideas and projects in the BTC ecosystem to discuss with us at any time.

Jerry – Synergis Capital: Bitcoin has the largest group of holders and the most loyal community base. Judging from the data experience of the continuous development of the Lightning Network ecosystem in the past, the BTC ecosystem is unlikely to be a flash in the pan. Our fund has already had a systematic layout in the BTC ecosystem, but we believe that it is indeed significantly behind the Ethereum ecosystem in terms of smart contract technology and deployment.