Bitcoin price has rallied recently, but it is still well below its 2021 peak.
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Token prices be damned, crypto is doing fine. Or so is the story told by the single investor with the largest stake in the industry.
This is a major takeaway from reports released on Tuesday by a16z Crypto, an arm of the leading venture-capital firm Andreessen Horowitz.
The VC firm has published a new “State of Crypto Index” that aims to track the crypto industry’s progress by aggregating things like the number of active crypto wallets and the number of “smart contracts” in use. According to the firm, the view is that crypto token prices alone do not present an accurate picture of the progress of decentralized finance.
“For people not following closely what actually happens in crypto, prices remain volatile. It has been like this since the beginning of crypto,” says Eddy Lazarin, CTO of a16z crypto . “But if you look at the underlying technology, it continues to advance.”
It’s easy to see why a16z would want to reset the narrative.
The past 12 months of the crypto industry have been marked by major bankruptcies, plummeting token prices, and the collapse of crypto exchange FTX amid allegations of fraud. The price of the largest coin bitcoin has been rising recently, even breaking above $30,000, but it is still down more than 50% from its 2021 peak of $65,000.
As A16z says, “the state of crypto” isn’t nearly as dire. In March, the index had a reading of about 1,615, down from a peak of 2,159 in 2021, but still 25 times higher in January 2020, before the Covid-19 pandemic took hold.
The firm itself has a lot at stake: a16z is one of the VC industry’s heaviest investors in crypto. Its portfolio includes Anchorage Digital, Avalanche, dYdX, Solana, and Uniswap, among dozens more.
Among the metrics that a16z says are already above the 2021 peak are the number of active wallets used to store crypto; the transaction volume of “stable coins”, whose value is usually pegged to the dollar; and a number of “smart contracts”, which are crypto-driven contracts that automatically execute when certain conditions are met.
Lazarin says such metrics and others are a more appropriate measure of growth in an ecosystem than token prices alone and they set the stage for developing real-world use cases for crypto.
Bitcoin is mostly held by investors in the hope that it will appreciate in price. But a16z argues that the crypto industry will have a much wider impact, describing it as “the evolution of the Internet” and a “new computing platform”.
Similar stories have been told by crypto proponents for years but have yet to emerge. Although the industry says it wants to eliminate financial intermediaries such as banks and exchanges in favor of cheaper, decentralized alternatives, most analyzes have found that a few firms, including a16z, have great influence over the industry. A US regulatory action, which has limited the options for crypto firms to obtain basic banking services, threatens the growth of crypto.
Perhaps the biggest near-term threat to many crypto projects is the lack of interest from venture-capital firms themselves. Lazarin says his firm still sees opportunities in crypto and is continuing to invest, though he acknowledged that “things may be a little slow.”
A separate report released Tuesday by Galaxy Digital said VC firms invested $2.4 billion in crypto-focused start-ups and protocols in the first quarter, the lowest amount in more than two years.
The era of “growth at all costs” is over, at least for now, and venture-backed start-ups need to prepare for a tougher fundraising environment for the foreseeable future. reports, which noted that VCs have pulled out of other industries as well. “The founder-friendly environment of the last several years is in the rearview mirror.”
Write to Joe Light at [email protected]
