Silicon Valley manager loses billions on cryptocurrency bet

  • The well-known venture capital firm has earned a reputation as the biggest crypto bull in Silicon Valley
  • Demand for many Andreessen-backed companies has disappeared as users have divested themselves of their cryptocurrency holdings.
  • Despite a record amount of cash, Andreessen has dramatically slowed the pace of its cryptocurrency investments this year.

Since mid-January, bitcoin has experienced a decline of about 60%, either due to crypto winter, a situation in which there is a long period of decline in the cryptocurrency, or investors fleeing the market in fear of losing money. But one thing is for sure, those who believed in the strong rise of digital currencies have come to regret it.

And one such company is Andreessen Horowitz, a well-known American venture capital firm that has gained a reputation as the biggest crypto bull in Silicon Valley. The manager was one of the most active crypto investors last year, and in May of this year announced a crypto fund of 4.5 billion dollars, the largest ever for that market.

According to an American newspaper The Wall Street JournalAndreessen Horowitz became great thanks to his partner Chris Dixon, one of the first people who believed that blockchain technology would launch cryptocurrencies.

However, with the demise of bitcoin and other altcoins, the company watched its billions of dollars disappear. Andreessen’s flagship cryptocurrency fund lost around 40% of its value in the first half of this year.

That drop is much larger than the 10 to 20 percent declines seen by other similar funds, which have mostly avoided the risky practice of buying volatile cryptocurrencies, according to investors interviewed by the US paper.

convince the market

At the same time, while investors argue that the value of the fund launched in May was too large for the industry, which is in sharp decline, Dixon needs to reassure them that Andreessen did not exaggerate the billion-dollar amount.

“They’ve gone so far with cryptocurrencies that I’m not sure they can get back into balance,” said Ben Narasin, general partner at venture capital firm Tenacity Venture Capital.

In an interview, Dixon stated that he remains true to the vision cryptocentric of the Internet called Web3, which supports Andreessen’s penetration into this sector. This point of view is that the blockchain will reward users of the system with cryptocurrencies, which could affect their returns.

Dixon also stated that the industry is still in the early stages of user acquisition and he is not sure when mass adoption of blockchain services will occur. “We have a very long-term horizon.”

A trip with a partner

The company’s choice to invest in cryptocurrencies is a reflection of Dixon’s life trajectory. He loved to program since childhood. The partner also founded two startups – one in cybersecurity and one in e-commerce – in addition to creating the venture capital firm Founder Collective.

Dixon joined Andreessen in 2012. Founded three years earlier by Marc Andreessen and Ben Horowitz, the company quickly became one of the largest and most influential technology investors, driven by Andreessen’s famous mantra: “Software is eating the world.”

according to The Wall Street JournalDixon’s appreciation for the field grew with the launch of Ethereum in 2015. “Dixon compared the arrival of the system to the creation of the iPhone App Store and claimed it showed that the cryptocurrency investment universe was bigger than imagined.”

He then told Andreessen and Horowitz that he wanted to focus on traditional investing and launch a dedicated cryptocurrency fund. In this way, a US$350 million fund was created, launched in 2018 – the first by a traditional venture firm.

Andreessen remained bullish that year as bitcoin and other cryptocurrencies lost most of their value, and in 2020 he raised a second cryptocurrency fund totaling $515 million.

Gold mine

Data compiled by the US newspaper shows that Andreessen distributed more than $4 billion in shares to its investors in the two months after Coinbase went public.

Andreessen’s third venture fund, which backed Coinbase in 2013, had 9.7 times unrealized earnings after fees in December filings.

Encouraged by the return, Andreessen participated in a fundraising campaign. It aimed to raise $1 billion for its third cryptocurrency fund, and ended up raising $2.2 billion in June 2021.

Dixon said the cryptocurrency team’s strategy was to use its money to write big checks to start-ups with the promise of reinventing everything from digital art to online gaming using blockchain. This aggressive approach often prevented him from holding joint rounds with other investors and made the company an important shareholder.

Impact on business

Also according to the article WSJAndreessen also faces one of the toughest regulatory processes in the cryptocurrency space, which threatens to end an era of lax enforcement that has allowed the creation of thousands of cryptocurrencies.

The company is adjusting and has already written down the value of its second and third crypto funds this year, although the declines are not as big as those suffered by the first crypto fund, sources close to them said.

Meanwhile, the company’s cryptocurrency investments are plummeting. Solana, a new cryptocurrency that the company acquired in June 2021, has lost more than 80% of its value since the beginning of the year.

In the first six months of this year, Andreessen lost $2.9 billion of its remaining stake in Coinbase as the cryptocurrency exchange’s share price fell more than 80%.

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