Author: hyphin Source: On Chain Times Translation: Shan Ouba, Golden Finance

The seeds sown last year amid uncertainty are finally starting to bear fruit. Retail investors have shown their cards to everyone, while private capital has kept their mouths shut. What do they have in hand? What are the outcomes they are betting on? They have been cautious since being hurt by over-enthusiasm the last time Bitcoin traded at such a price. Has the strategy changed this time?

Introduction

Regardless of market conditions, financing will never completely stop because the industry's innovation engine is efficient enough to reward those who power it. However, enthusiasm depends largely on forecasts. Historically, favorable conditions have often been attractive to early-stage capital because the potential rewards far outweigh the associated risks. For many onlookers, the increase in these for-profit entities suggests that the party has already begun or is about to begin. It is clear that we have been in a bull market for a long time and the fortress is within reach. With this in mind, one can expect cumulative funding to exceed or at least approach the standards set by the previous cycle.

It is safe to say that these optimistic expectations are backed by reality, as monthly indicators this year pale in comparison to the four-year average. Compared to 2018, 2021, and 2022, these figures are just a drop in the ocean created by the zero interest rate, cheap money era. While the reported financials are not something to look at, they do indicate that the opportunities to obtain large amounts of initial start-up funds have significantly decreased as we transition to the new normal. This doesn’t mean that people in the office have let their guard down, as activity appears to have tapered off. On the contrary, the number of investment rounds that have occurred is actually above average.

Before Bitcoin hit its all-time high, the pace of funding announcements drafted accelerated significantly, showing strong participation in the behind-the-scenes bootstrapping operation. This surge was primarily driven by OTC participants entering the market en masse and participating in more rounds than usual. However, activity tapered off as summers are historically relatively quiet.

It is true that the average salary received by founders is certainly not as much as before, which forces entrepreneurs to be resourceful and manage their burn rate wisely in order to successfully push their works to the finish line.

Sentiment/Positioning

Understanding the current funding landscape, we can confidently infer that venture capital expects some upside in the unforeseeable future. Although the size of the bet does not bring much confidence, the risk appetite may. Companies can raise funds at various stages of development, each with its own considerations and industry standard amount ranges.

To learn more about the general knowledge and terminology, we recommend that you check out our previous articles on the subject before continuing.

By categorizing investment types according to their respective characteristics, we can assign them a rough risk score. This allows us to roughly measure the overall risk tolerance of all vested interests and thus determine the confidence in the continuation or change of trends by quantifying their collective propensity to engage in speculative activities.

The sentiment in our graph will be represented by a composite metric calculated by adding the weighted frequency-based and quantity-based scores using the values ​​we established previously.

The lower the composite index, the more conservative the stance, while the higher the composite index, the more radical the stance. The transition between these stances can be determined by whether the value intersects the mean (marked as a green dashed line on the chart).

While this chart is a bit overwhelming, it provides an interesting perspective on how positioning and investment approaches have evolved over time. In the last cycle, low amounts and high frequency scores led to relatively modest composite indicators as a large amount of funds were invested primarily in high-valuation series rounds. Many well-capitalized companies made significant bets on the industry through infrastructure and institutional products. This sentiment began to shift at the end of the rally, with riskier early-stage financing becoming more prominent as people placed more emphasis on incubating emerging projects while maintaining conservative commitments. The change in rhythm can be seen around the last quarter of 2022, when large individual rounds were conducted during the FTX crash and the future of cryptocurrencies was questioned. After the catastrophic capitulation and market bottom formation, private capital ventured to significantly increase financial support for developing companies until the fourth quarter of 2023. Subsequently, larger private placements and series strategic rounds came into focus. This trend has persisted for most of the year, with the frequency score declining despite record activity. This suggests that investors are more cautious and selective in their allocations, preferring safer investments.

Fund Analysis

This year has been a tough year for most altcoins, with only a few altcoins in a few categories outperforming the main assets. Even those who acquired tokens at a discount were not immune, as the downside potential for speculative investments has proven to be almost bottomless. Choosing the right niche is more important than ever. To get a comprehensive view of where the funds are flowing and assess the most sought-after narratives, we can map the amounts raised to the respective categories. For consistency, all publicly traded Bitcoin mining companies are excluded from the dataset. It is worth noting that not all raises report numbers, so the actual composition may be slightly different.