Analyst claims venture capitalists exert predatory dominance over crypto market
Justin Bons, Founder and Chief Investment Officer (CIO) of Cyber Capital, Europe’s longest-standing cryptocurrency fund, has criticized the predominant finance model in the cryptocurrency market, centered around Venture Capitalists’ (VCs) fundraising practices.
Bons argues that the current landscape is marred by what he terms as “predatory VCs,” a phenomenon he attributes to regulatory pressures that effectively outlawed Initial Coin Offerings (ICOs), thereby relinquishing early-stage market control to VCs. This viewpoint echoes sentiments previously expressed by other analysts, such as Miles Deutscher, who identified these dynamics as fundamental flaws hindering cryptocurrency’s ascent.
In Bons’ assessment, the rise of VC dominance in crypto is far from optimal. He points out that VCs frequently secure investments at deeply discounted rates during initial stages (“pre-pre-pre-sales”), only to sell to retail investors later at inflated prices—an approach he deems inequitable and exploitative.
The elimination of ICOs, which once democratized crypto fundraising, is a central concern for Bons. He contends that the current system, which favors accredited investors with substantial financial resources, alienates retail and less affluent investors from high-return opportunities. This regulatory framework, Bons argues, has effectively transformed the crypto market into an exclusive “VC boys club,” akin to traditional equity markets.
Moreover, Bons critiques the irony in regulatory policies that allow small-scale participation in lotteries but erect significant barriers to entry for potentially lucrative early-stage crypto investments. Stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, coupled with high minimum investment thresholds often exceeding $100,000, further exclude smaller investors.
Advocating for a return to ICOs, Bons underscores their historical success in fostering investment diversity within decentralized finance (DeFi). Major DeFi platforms like Ethereum trace their origins to ICOs, which, according to Bons, thrived until regulatory pressures forced their decline.
Furthermore, Bons highlights inherent conflicts between crypto tokens and equity models within projects, warning of potential rent-seeking behaviors among VCs that could undermine token economics.
Despite challenges posed by VC dominance, recent data reveals a modest recovery in crypto funding post-March 2024, averaging $1 billion monthly. However, this pales in comparison to the VC funding peak of 2021-2022, where monthly sums exceeded $3 billion.
In conclusion, Bons calls for a reassessment of current regulatory frameworks, advocating for retail investor inclusion in early-stage crypto investments. He argues that regulatory bans on such participation perpetuate exploitation, urging regulators to facilitate a fairer investment environment. While acknowledging the vital role of VCs in project funding, Bons emphasizes the need for a transparent and inclusive model where investment success hinges on knowledge rather than exclusive access.
