Investors shouldn’t be too concerned with the volatility in the price of crypto assets because the development side of Web3 and blockchain technology has never been better, says a new report from the world’s largest crypto venture capital firm Andreessen Horowitz (a16z).
In their most recent State of Crypto report, the VC firm claims that the number of active users, along with the total number of smart contracts has never been higher and that crypto investors would be wise to block out the “noise” of prices if they want to gain a sharper edge on how the space is really developing.
The VC firm also published a new State of Crypto index that claims to track the progress of the industry by looking at data that shows the number of active wallets and the total amount of smart contracts deployed across the board.
The foundational claim of this new index is that the prices of crypto assets aren’t necessarily the best metric for tracking the progress that crypto and blockchain technologies are making. Investors should be looking to more specific data instead, the index suggests.
“Our 2023 report aims to address the imbalance between the noise of fleeting price movements – and the data that tracks the signals that matter, including the durable progress of Web3 technology. Overall, the report reflects a healthier industry than market prices may indicate, and a steady cycle of development, product launches, and ongoing innovation,” wrote a16z in an accompanying blog post.
The report adds that the stunning collapses of major cryptocurrency firms like FTX, BlockFi, Celsius Network and Voyager Digital have all been poignant examples of the failure of centralised financial systems and don’t accurately reflect the more robust nature decentralised finance protocols and cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH).
Speaking directly to this, a16z notes that Web3 and cryptocurrency more broadly is “more than a financial movement, it’s an evolution of the internet.” According to the VC firm, Web3 keeps making stellar progress for the internet via “crypto computers, not crypto casinos.”
It’s worth noting here that a16z has a lot on the table when it comes to cryptocurrency, and, at the time of writing, it is one of the world’s largest investors in the industry. Its portfolio includes significant holdings of Coinbase, Avalanche, dYdX, Solana, Uniswap and Yuga Labs among other notable crypto ventures.
Downturns make for higher conviction
The report adds that more than 15 million active wallet addresses were active in the last month alone, marking the highest amount of active wallets the firm has ever witnessed. This number represents more than twice the total amount present in the early days of 2021.
In an interview with CoinDesk, a16z Chief Technology Officer Eddy Lazzarin said that downturns, like the one the crypto markets experienced in 2022, create a more robust ecosystem of developers and builders.
“Product cycles are where new things that lead to consistent and more robust growth over many years are occurring, regardless of financial cycles,” Lazzarin explained.
a16z: The era of “growth at all costs” is over
The biggest struggle for a16z now is the dwindling amount of capital that investors are willing to pour into the once founder-friendly environment, something that a new report (published yesterday) from Mike Novogratz’s Galaxy Digital says is now “in the rearview mirror.”
“The era of ‘growth at all costs’ is over, at least for now, and venture-backed start-ups need to prepare for a difficult fundraising environment for the foreseeable future,” said the Galaxy Digital report, drawing specific attention to the fact that venture capital firms have also cut back on investment in a number of other tech industries too.
Ultimately, it seems as though the biggest threat to the majority of crypto projects is the waning interest from venture-capital firms themselves. While the a16z report paints a pretty picture of the state of the industry, Lazzarin says his firm’s appetite for new projects remains healthy, despite admitting that investment from their end “may have slowed slightly.”