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Bull Market Confuses Venture Capitalists
Market Signals Hitting the Peak
Momir Amidzic pointed out that during a bull market, some newly issued tokens can reach a valuation of billions of dollars even before the product is fully developed. This leads investors and new projects to set their valuations based on these high fully diluted valuations (FDV). As a result, venture capital firms are placing more emphasis on the project’s FDV, even if their investment cannot exit within three years.
In a bull market, adopting a fast-paced mindset may contribute to short-term liquidity betting. However, this approach may not necessarily yield successful returns in the primary market. Applying the trading mindset of the secondary market to venture capital transactions is a risky mistake.
Momir Amidzic further pointed out that there are many tokens in the current market that will eventually experience a drop of over 90%. The only question is when and what will trigger this decline. In the previous cycle, many tokens with valuations exceeding $2 billion have now disappeared or have a market value of only around $10 million.
At the same time, a bull market is not the best time for venture capital investments. While distributing money during a bull market may bring short-term paper gains, it may not necessarily result in real returns in the long run. The failure of large funds in the previous cycle, such as those who entered top-notch venture capital projects during the peak periods of OpenSea, Axie, and FTX, is the best example. Although a bull market is tempting for venture capitalists, as it not only provides high “paper returns” but also allows them to raise more funds from LPs, Momir Amidzic still believes that maintaining caution during market frenzy, not being driven by FOMO, is the key to avoiding impulsive decisions and achieving long-term success.
Regarding Momir Amidzic’s views, Arthur, the founder of DeFiance Capital, agrees and emphasizes that venture capitalists’ discipline in project valuations has been thrown out the window. The mentality of investors and venture capitalists (VCs) has become “I don’t care about valuations as long as we can get a 10x return on that investment.”
Furthermore, Arthur also points out that venture capitalists losing discipline in valuations is an important signal of the market hitting its peak. This is because when the market widely accepts inflated valuations and invests based on extremely optimistic future expectations, it often indicates an overheated market that may be approaching a turning point. Historically, such market sentiment often foreshadows the formation of a bubble, which may eventually lead to market adjustments or collapses, resulting in losses for investors in overvalued projects.
(This article is authorized and reprinted from GT Radar)
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GT Radar focuses on building long-term and stable growth quantitative investment portfolios and has over 10 years of experience in stock and cryptocurrency quantitative trading. The trading system integrates over 150 strategies, aiming to provide high adaptability and flexibility, ensuring profits are obtained from the market in the most robust manner.
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