From theblock by James Hunt

Discussing the state of crypto venture at the Emergence conference in Prague on Thursday, VCs said it was still pretty early in the bull cycle, and they don’t yet see retail participation at the same levels of 2021.

With the crypto market heating up, with bitcoin trading at all-time highs above $100,000, Viktor Fischer, Managing Partner at digital assets investment and engineering firm Rockaway X asked the rest of the panel how they were thinking about exiting their positions this cycle.

“It's a very personal question,” Ryze Labs founder and Managing Partner Matthew Graham said. “Americans always want to use these dumb baseball analogies, but I don't think it's the seventh, eighth, or certainly not the ninth ending of this cycle yet. I think it's more like four, five, or six, maybe five or six. So we're still pretty comfortable.”

However, drawing on Warren Buffet's famous framing, he warned that “when people are partying and dating supermodels and buying yachts, that's probably a good time to sell because most of us aren't that good-looking, to be honest.”

“I still remember Breakpoint, November 2021, when Solana was at $250 and people were walking around with Louis Vuitton and off-white shirts, it was time to sell,” Fischer responded. “Twitter is very bullish right now. [In the] U.S., even government politicians are now shilling crypto, Jerome Powell said bitcoin is digital gold. There are a lot of positive signs already over there."

“However, I don't really see retail in yet,” Fischer continued. “It was in 2021. My friends are still not calling me, [asking] should I buy Cardano? We are not there yet. That's why I think this bull market will be a bit more prolonged than the other ones.”

Charlie Sandor, Investment Partner CMT Digital, agreed that it was still pretty early in the cycle and not that late yet, adding that it is important for most venture firms to stay on the pulse of the market as they have a significant portion of their portfolio in token outcomes. Sandor said CMT Digital has someone dedicated to managing its liquid positions, meets weekly to review performance and decides whether to take some positions off the table.

US regulatory bottleneck has opened up

Sandor also reflected on how tough it was for founders to build blockchain-based companies in the U.S. over the last four years, suggesting that bottleneck has now opened up after the presidential elections, with the hope that the incoming Trump administration will be more friendly to the crypto space. “I think you're going to see some amazing innovation and even just broader adoption now that there's less pressure on the regulatory side,” he said. “I think as you see over the next year or two, there'll be a lot of forward-looking regulation across the globe, which will change the landscape.”

Ryze Labs’ Graham said the approach to the regulatory landscape started with risk mitigation and taking adequate steps to geo-fence where needed. “It can certainly be extremely tricky, but I would advocate for a safety-first approach.”

“I would say the only two jurisdictions that matter is the U.S. and Europe,” Fischer said, urging countries in the regions to “stop the evasion of brains to Dubai.” Reflecting on being personally debanked due to his work in the crypto industry, Fischer suggested banking system reform, clear rules of the road for crypto and improved tax frameworks were the top priorities.

AI agents are ‘most important trend since DeFi’

In terms of the narratives now shaping deal-making in the industry, the VCs were particularly focused on AI agents.

Graham said Ryze Labs is spending an “overwhelming percentage” of its time on AI. In November, Ryze Labs partnered with memefund ai16z to launch an “AICombinator” $5 million program to support the growth of the ai16z ecosystem. Project founders will receive early access to use newly launched features on ai16z’s Eliza framework, ai16z's conversational agent for X and Discord, as part of the initiative.

“I think it's the most important thing in the industry since DeFi. I think it's a very big deal,” Graham said.

Rockaway X’s Fischer is also excited about AI agents, drawing a parallel in their significance with proof-of-stake blockchains in 2018 and the DeFi summer of 2020. “They are now even giving work to humans,” he said.

Sandor said CMT’s research team was also looking into AI agents and verifiable inferences onchain but was also excited about what he described as an inflection point in global payments, highlighting Stripe’s recent $1.1 billion acquisition of stablecoin firm Bridge.

Risks, valuations and VCs ‘secret sauce’

With risk magnified across the board in crypto compared to traditional finance, Graham said two factors swamp all others. “The first is founder and team risk, just to an overwhelming degree, is going to swamp all the other types of risks that you have at the time of investment,” he said, a sentiment echoed by the other panelists. “Then the second type of risk that's going to swamp everything else is bull and bear market cycles in terms of timing of exit.”

Regarding project valuations, the VCs said that once they reach Series A rounds, it is very much metric-based. Weird edge cases where companies will raise mammoth rounds should be avoided — but, ultimately, everything in crypto was narrative-driven and they have to think about realistic exit valuations, they added. However, Fischer urged his U.S. colleagues not to go crazy. “I know you have dry powder. I know there's a lot of positive mindset right now across the ocean, but like $400 million valuations for a new L1, it's not going to help the industry. I'd rather wait and then buy it once it's liquid in the next bear market at like $80 million,” he said.

Finally, in terms of a “secret sauce” value add that the panelists’ firms bring to the venture table, Graham argued people get it wrong when trying to do a little bit of everything, and most should focus on specific areas they can become the best in the world at. “That’s going to be your super power,” he said, highlighting Ryze Labs’ local expertise in emerging markets.

Fischer said Rockaway X was slightly different, with separate divisions focusing on areas such as managing blockchain validators and credit funds to provide liquidity to grow the total value locked in DeFi.

Ultimately, they all agreed that the biggest value add is being there for their portfolio founders and making their life easier. “Being a CEO is a very lonely job. Just be there when the CEO needs, and second, help with introductions and networking,” Fischer said.