Seth Ginns of CoinFund explains why the crypto downturn has spared early-stage startups
For the past year, crypto token prices have been trending downward, with BTC and ETH both down more than 50% since last September. Despite the drop in cryptocurrency prices, Seth Ginns, managing partner and head of liquid tokens at digital asset investment firm Chain Reaction that early-stage web3 startups have shown remarkable resilience in their valuations. Startups haven’t been immune to the downturn entirely; late-stage companies have taken the biggest valuation hits. Ginns has extensive knowledge of the crypto market as an investor at CoinFund, which deploys capital in both private investments such as startups and liquid investments such as crypto tokens.
When liquid markets represent the best opportunities, we can lean more into them, and when venture markets represent the best opportunities, we can lean more into them. While Ginns has seen late-stage crypto startups suffer valuation cuts in recent months, he believes the downturn has spared seed-stage companies to some extent. Just seeing a step down in where valuations are for either the team has just come together and is launching that true pre-seed type round, or that next stage right after that, where you’re not sure if they have a product-market fit yet, but have a great team and some great early momentum on the BD side.
Early-stage startup valuations have dropped by 15-30%, a much less severe drop than we’ve seen in token prices and even public tech stocks. The valuations of early-stage crypto startups are not where traditional tech at that stage was two or three years ago. They’re not where crypto was two or three years ago, adding that they do not believe valuations for these early-stage companies will fall as low as they have in previous market cycles.
So, what’s causing this tenacity?
One interesting dynamic in crypto is that we see network valuations for protocols step by order of magnitude every cycle. We don’t think it will continue to be an order of magnitude every cycle, but they do take big steps up and each time you take that step up, you validate this new valuation range, which means you end up with people thinking about how to value their early-stage startup referencing the latest mark that you were getting in the previous bull market.
Because of the Federal Reserve’s hawkish stance, the cryptocurrency market has remained sluggish. Retail traders are bracing for a full-fledged crypto crash. Retail investors spent nearly $20 billion on put option protections. He reveals that this is a new high. Jasoshowsls that leveraged traders believe a crypto crash is imminent.