All Financial Wisdom

The Unwanted Effects of Crypto Currencies – Distortion in Risk Capital

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Distortion in risk capital

One of the main difficulties in the venture capital industry is that projects or ideas may not come to fruition even if they have powerful investments. The discipline needed to create a specialized team comes into conflict when investors seek instant wealth.

What happened to the cryptocurrencies at the arrival of the venture capital world? Some technological projects that may have had great difficulties in raising millions in their first round, all of a sudden can now receive large amounts of money.

The venture capital investor supports new technologies

As happened a decade ago with the technology bubble, the large part of the money that enters ICOs is squandered. But there is the possibility that a handful of businesses survive in the jungle of startups to become as powerful as Amazon or Facebook.

This trend will reach venture capital investors, since it has exposed limitations both in financing models and in the vision of the market. Sequoia and Kleiner only invested $25 million in Google, and held on for the ride.

From an investor’s perspective, accustomed to supporting new technologies, cryptocurrencies as a revolution is something technological. The blockchain technology offers the possibility of building decentralized networks in most areas of the digital economy, without taking into account traditional businesses.

The Blockchain’s potential continues to be undervalued

The banking entities talk about blockchain technology as something that must be mastered and converted into a tool to perform a few administrative functions, like the big media multinationals, which saw in the bubble 2.0 era, only as a useful way to reduce your distribution costs.

Many of the most prominent investors in Silicon Valley were out of sight on what has been a short-term revolution, that is, the creation of a new type of currency. Bitcoin has been a kind of joke for tech circles because of its simple foundations, and it was thought that they would end up falling apart or being overtaken by something technological.

Startups do not sell cryptocurrencies because they need it

Clearly, startups do not sell currencies because they need it, butrather, because it’s the easiest way to benefit from the large amount of money that is flooding everything related to the cryptocurrency revolution.

This effect has generated distortion – as in the case of Ripple. Ripple is a startup created 6 years ago that has created an interesting technology for international payments to be more fluid. The cryptocurrency of Ripple, called XRP, has already had its movement among speculators who expect it to be a new international currency.

The cryptocurrency, to this day, has not really found its place in the world of banking entities, although several banks have tested this technology, although they have not yet applied it in the financial market.

Right now, it is not surprising that software companies for companies with business models that depend on monthly subscriptions are considering the incorporation of cryptocurrencies, and the blockchain is leading to great acceptance in vertical markets.

A great puzzle for venture capital investors

This situation has caused a major headache to venture capital investors who are looking for more than speculative benefits within this cryptocurrency market. They still need to find long-term a business and invest in it, and it is very necessary that they exist.

The best businesses always create communities that unite developers and user groups with an interest that unites and shares them. This situation offers real benefits to users and there are ways to encourage each other by reinforcing behaviors that are good for the health of the community, and not only in the promise currently offered by cryptocurrencies.

Therefore, like all new businesses, they take time to be formed and built, but that does not mean that the cryptocurrency revolution with its big speculative bubble is going to stop any times soon.

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