As cryptocurrency becomes more popular, we’ve begun to see more investors enter the market. For example, 5% of the money invested by venture capitalists in 2021 was in cryptocurrency and blockchain technology. While this surge of investment in the industry is great, some experts have expressed concerns that the bubble may burst sooner than we think.
The Dot-com Bubble
Industry analysts have already compared the crypto market and the dot-com bubble of the early 2000s. In the late 90s and early 2000s, investors based their dot-com market decisions on traffic growth rather than market trends and revenue data.
When the dot-com bubble burst, investors failed to realize that funding doesn’t necessarily guarantee success. As a result, analysts are concerned that crypto investors could make the same grave mistake.
How Can We Prevent History from Repeating Itself?
Crypto experts recommend that venture capitalists investing in crypto projects look toward launch pads. Launchpads serve as platforms within the industry that help new crypto projects raise funding in return for early access tokens. Then, as the business increases in value, these tokens will help investors make a return on their launch pad investment.
Venture Capitalist Networks
Venture capitalists looking to enter the crypto market should work through a network. A network will use its resources to find new businesses with the highest chances of success. In addition, by working with a network, venture capitalists can ensure they earn substantial returns on their investments.
The government must thoroughly vet each new business that enters the crypto market, ensuring they meet certain standards. Doing so will help reduce the number of scams in the crypto market every year and assure venture capitalists that they are working with reputable crypto businesses.
A Growing Industry
The crypto industry can be incredibly lucrative for venture capitalists, as new businesses are always entering the market. However, venture capitalists must practice caution and understand the risk they take with each investment.