Justin Bons, Founder and CIO of Cyber Capital Europe’s oldest cryptocurrency fund, criticized the current dominant finance model in the cryptocurrency market based on Venture Capitalists’ (VCs) fundraising.
According to Justin Bons, cryptocurrencies are currently dominated by “predatory VCs.” This situation, according to Bons, stems from regulatory pressures that have made Initial Coin Offerings (ICOs) effectively illegal, handing over the entire early-stage market to VCs.
Previously, Finbold reported another analyst sharing a similar view about the topic. Miles Deutscher highlighted these new fundraising dynamics as one of the “fundamental flaws” preventing cryptocurrencies from reaching higher grounds.
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In summary, the two analysts seem to agree that the VC model punishes retail and drives small investors away.
The rise of VC dominance in crypto
Notably, Bons argues that the current state of affairs in the crypto market is far from ideal. He points out that VCs often get in on “pre-pre-pre-sales” at heavily discounted prices, only to sell to retail investors at inflated rates later. This practice, he contends, is unfair and exploitative.
The analyst emphasizes the need to bring back ICOs, which he believes democratized fundraising in the crypto space. “Fundraising in crypto used to be democratized; anyone could participate on equal terms,” Bons states.
He further explains that the current system, with its stringent requirements for accredited investors, effectively puts high-return investment opportunities out of reach for retail and less affluent investors.
Regulatory hurdles and their consequences
Moreover, Bons highlights the irony in current regulations, noting that while poor people are allowed to buy lottery tickets, they are barred from participating in potentially lucrative early-stage crypto investments. He argues that this situation has turned the crypto market into a “VC boys club.” In particular, the CIO compares it to what is seen in traditional equity markets.
The regulatory requirements, such as extensive Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures, often necessitate lawyers and accountants on the payroll. Additionally, minimum investment amounts, frequently set at $100,000 or more, further exclude smaller investors from participating.
The Case for democratizing crypto investments
Cyber Capital’s founder makes a strong case for the return of ICOs, arguing that they have the potential to democratize investment for all. He points out that many major decentralized finance (DeFi) blue chips, including Ethereum (ETH), originate from past ICOs. He contends that the ICO model proved successful but was abandoned due to regulatory pressure.
Furthermore, the analyst mentioned an inherent conflict between crypto tokens and crypto equity. When both exist for a project, there can be a battle over revenue flows, potentially leading to rent-seeking behavior by VCs that can weaken token economics.
Despite the challenges posed by VC dominance, recent data suggests a slight recovery in crypto funding. According to CryptoRank, cryptocurrency projects have raised an average of $1 billion monthly in funding rounds since March 2024. This represents a modest improvement from previous months. Nevertheless, it fell short of the VC boom in 2021-2022 when projects were raising over $3 billion monthly.
Conclusion: A call for change
In conclusion, Justin Bons calls for a reevaluation of the current regulatory landscape. He argues that banning retail participation in early-stage investments only leads to their exploitation at a later stage. The analyst believes that convincing regulators to allow retail investors to participate on a level playing field is crucial for the healthy development of the crypto market.
While acknowledging the important role VCs play in funding early-stage projects, Bons maintains that regulation has artificially pushed their prominence to unhealthy levels. He advocates for a return to a more open and transparent investment model, where knowledge, rather than privileged access, determines investment success.
