How can crypto startups survive the bear market?

Hello and welcome from the coin Telegraph research terminal I'll be your Host Michael bone senior Economist with Coin Telegraph research today's panel Will be discussing the latest blockchain Industry buzzwords web 3 and metaverse Last year Venture Capital investments in The crypto space were focused mainly on Decentralized finance or defy and over The past two quarters this Focus has Shifted to the term web 3. Tim Draper Web3 is a sector of the blockchain Industry which can mean a lot of Different things what does the term web3 Mean to you and do you think it it the Term might be too broad as it is used Today the media is capturing people's Imagination and they're kind of going Web3 like we got a new thing coming and What it does is it forced me and I'm Sure it's forcing entrepreneurs Everywhere to think okay with web 3 what Can I do and and so all of a sudden They're they're getting more creative They're coming up with really Interesting new projects that nobody Ever imagined and they're saying we're We're gonna make it simpler for you the User in some ways I think oh it's a hype Monster that means nothing and in some Ways I think this is such a great idea It's like like we're going to the moon Or going to Mars and it gets people Thinking what's it going to look like

How exciting is this going to be uh so That's my web3 uh diatribe Absolutely I love that Um This is me at bellridi you're the Founding partner of keychain Ventures Which is an investment platform aiming To provide institutional investors Exposure to the blockchain and web3 Ecosystems through funds and Co-investment opportunities but what are Some of the trends in web 3 as you see Them and uh can they be broken down even Further maybe even to more helpful Categories as as Tim alluded to you know Everything is just kind of jumped Together yeah I guess Um I I totally agree what uh Tim said About web pretty it's uh it encapsulates All the Innovation that is happening Today but if I have to simplify it I Think web3 is about decentralization Right so it's about decentralized Technology that you know is used today For Bitcoin or for any other ecosystem Uh for at least the general Masters now If we double click and we try to look at What what are the the sub sectors let's Say uh or the different layers in web3 Uh it's today used as a catch hole Within the industry for anything that we Cannot Define other sub sectors to give You some examples and illustrate maybe What today falls on the web 3 we talk

About digital identity for instance it Has not emerged yet as a key a clear Vertical and today to people put it in Their reports or their reporting and Their web 3 but eventually as that Category grows and that is drives more Builders and more use cases and more Applications that will emerge as a new Category and will not be any more Included in web 3 but you know in in Short is a bit a catch-all phrase for Anything that is not yet defined that's Still being built and still very being Very exciting to see emerge from this Ecosystem That's a great transition over to Julian Linger who is a uh from rally is a Bitcoin only app focused on helping to Bring the next generation of long-term Investors and giving them simple User-friendly experiences to stack Bitcoin which I am a proponent of and How has the process of onboarding people In the market since the downturn over The past few quarters how is that how is That Journey been Yeah that's that's changed quite a lot Actually so when whenever uh there's an Uptrend in the market look mainly people Newcomers that we talk to or we focus on They look at price so whatever whenever The market is moving there's more Activity usually the most activities and Markets are moving up because there's

Fomo so for us as a business it's Basically free new customer acquisition Right they're just they're just coming They're trying out everything that as as Easy as possible as fast as possible and And they want to get into it they want To rush into it whenever the market is Stable we don't see that much activity We mainly see kind of the core Bitcoin Community that is still running their Savings plans their DCA is still buying The small dips you know but really the Mainstream the pr the media and Therefore the normal people on the Street don't really care that much that Was what we observed kind of in in the Second phase in the last couple of Months and so there what we see is Basically again newcomers coming in Because they see a chance now all the The it's a cheap point of entry and also The the bitcoiners obviously buying the Dip Um and even accelerating or increasing Their savings plans amounts the more the Market moves the more people are are Coming in but different people are Coming in when it goes up more newcomers Are coming in when when it goes down the The Bitcoin only proponents or the Bitcoin maximal it's the Enthusiast Basically uh stepping in with uh bigger Amounts VC Capital inflows have been on A decline since April with October

Actually dipping down below one billion Dollars which is the one billion dollar Mark which it hasn't done for a long Over a year Um Mr Draper do you think that the rest Of 2022 might see a slight change in This activity for VCS uh who might have To meet Financial Obligations in a year You know for the year whatever for tax Reasons or whatever it happens to be or Are we likely to hover around this level Of activity as firms remain risk off No investors always get it wrong Um they they come in when it's just Hyped up and everything's great and then The Venture capitalists all have to Compete with each other and it's Venture Fratric side because all the companies Fight each other to the death and now of Course would be the best time to be Investing in Venture Capital but the Markets are down people are not feeling That Um that kind of comfort with their own Portfolios and they're saying well I Can't take a risk on something that's Venture capital I can't invest in Something risky right now and so my Advice to my entrepreneurs is go out and Get your money from customers because The Venture guys are tightening up and Um and people it I mean it's it is a Little bit more logical you know this is Where Bitcoin would be awesome because

Right now we've got the fed and the FED Kind of over over compensates and under Compensate you know and so when when the FED Pumps interest rates up the markets come Crashing down and Um and when the markets come down then Nobody has any money and so they can't Risk their money they can't put it to Work and so then we we get sort of Whipsawed back and forth Um if this were all a Bitcoin economy it Would be a stably economy and and people Wouldn't have to go through these um Terrible whip saws where they have huge Layoffs and everybody's out of work and You wouldn't have to have that you'd Have a very stable economic system and I Think that people eventually will Recognize this uh it's right now they it Isn't the way they're thinking it isn't The way they're voting Um But uh investors are they do pile on When things are good and they pull back When things are tight but it it should Actually be the opposite this is a great To be putting money into new startups It's just amazing The firms that you engage with from all Over the world I'm sure are feeling Similar sentiments to that what are some Of the feelings and concerns you are Hearing from your circles

Well definitely I mean uh recession Inflation has been a big concern over The last year and you know as Tim said It's a very you know let's say difficult To market for fundraising both for funds And for projects so uh I guess you know Uh the trend is uh is probably going to Continue for 2023 and the project will Have to find uh to be more efficient to You know find more Runway and maybe you Know as team said be able to get uh Capital or funding through sales and From their customers directly so I'm Pretty excited about to see how uh you Know crypto space in general some of This application could you know drive More adoption and drive more revenue and Be able to be more profitable Julian where does relay see themselves In the web 3 space staying true to the Bitcoin only ethos and are there any Plants potentially Partnerships or Expansions to your product offerings With that kind of mindset Yeah so I I kind of look at web 3 in in A historical way I mean historic Historical from like web one web two and Web 3 whereas web one is kind of read Only so this was only like displaying Things texts and images and looking at It web 2 was Now read and write so you Could also do stuff you could interact With services and other people and so Social media and all that kind of stuff

And now web 3 is read write and own so It's all about ownership of data but It's also about real ownership of of Value so it's this internet of value That in my opinion needs an innovation Decentralized Network like Bitcoin and It doesn't necessarily need any other Protocols Um because the true innovation of of Blockchain and crypto and whatever it's Called today decentralized finance and All that kind of stuff is really Bitcoin Yes there are a lot of things with other Protocols that are now like these other 20K plus Tokens and coins and blockchains there Are many things tried out which are Interesting but I feel that it's Basically a playground where a lot of Experimentation is happening and Whatever will work will sooner or later Uh be uh be manifested and implemented On the Bitcoin Network which is not only The base layer like a lot of people Always talk about Bitcoin as this base Layer but no it's a it's going to be a Layered Innovation like the internet Having seven layers also Bitcoin is now Developing uh several layers so for Example the second layer called Lightning and then many more like RGB And so forth which will enable Everything that you now see on these Other

Protocols like smart contracts nfts defy Tokenization like all that stuff can Happen on the Bitcoin blockchain and That's for me the true web web 3 that is Going to develop in the in the next Decade I would be completely remiss not To comment on the current state of the Crypto Market which we all know does not Exist in a vacuum and is impacted by the Macroeconomic conditions across the Entire world this is a growing industry The blockchain industry that does face Special challenges during times like This as we have seen with three arrows Capital others you know now potentially FTX Tim and you're late in in our latest Coin Telegraph research interview with Dan tapiero from 10t Holdings we talked About regulation do you think with the Recent issues that have popped up with Different crypto custodians they will Only accelerate the call for regulation And or can the industry come to its own Aid Well I think Regulators regulate at Their own Peril Um they're not Uh it turns out that Um countries that trust their people Uh and create Freedom end up with the Best economic outcomes and so every time You add a new regulation you are hurting Your economic outcome the U.S was very Good in um in keeping hands off when the

Internet came Uh And I guess now that they're dealing With money they're a little more Um control based they're the government Officials are also sort of saying wait Wait this is money information was one Thing but this is money and they feel Like they've got to control everything But I think The control works to the detriment of a Country And so you're seeing some countries Um totally mess up China and China and Russia with their toe control freak Leaders Um and you're seeing some countries jump On the the opportunity Um and those were Japan when they made It Bitcoin and National currency El Salvador Beautifully done Now the Dem the uh Central African Republic Uh yeah uh now they are making Bitcoin a National currency that Um Ukraine uh in a desperate situation Decided that yeah Bitcoin counts Um and uh and and so some of these Countries are saying hey we trust you we Think you're going to figure out how Best to run your life And uh and we will only step in if there Are some real issues that are affecting

Many many millions of people Um I think that's kind of my stance that The winners over the next 40 years are Going to be The ones the countries that decided that They were going to allow uh Bitcoin to Rip And uh and allow freedom in their Countries Freedom just works it just it It's so clear in my head you know you Look at South and North Korea it's Pretty clear Um you look at Cuba versus Hong Kong Before she came in and took over Hanka Uh it's really clear that that the free Countries are the ones that um that Thrive and the um and the Socialist Communist dictatorship government Control Regulated countries just stagnate Absolutely absolutely Smee it on our Last interview we discussed a lot about Regulation and we talk about Institutions Um you know worried about regulation Coming in as a good thing has your view Changed on this at all or have from what You've heard from your circles has it Has they do they have a new Understanding of it are they still Seeking that for regulatory Clarity for Them before they jump in Yeah I mean on the institutional side

Um I'm still up to you that they need Some form of Regulation framework uh to Be able to adopt the technology in its Fullest Um but to go back to teams points I mean I will Nuance the regulation or how we Split it in a few buckets there is Regulation for driving control and Controlling populations but there is Also regulation just to provide Protection for certain participants in The in the ecosystem uh obviously I'm a Proponent for regulation to drive Protection and I think having some form Of Regulation I guess from for for for Uh institutional adoption is in my view Pretty required I mean it's difficult to See how large financial institutions That are regulated today will jump onto Something that is decentralized and you Know where they would not be able just To operate in the way they've been Operating today so but just to be clear I'm not a proponent for just you know Copy pasting the regulation that we have Today and apply it on decentralized Technology obviously that's not that That would be the worst outcome ever Yeah in um in America we've recently had Bills proposed in America that talk About Um uh state to state trade you know the The this interstate commerce clause and It's it's almost laughable interstate

Commerce is not even a question we're Talking about something that is inner World you know it could be it's going to Be on a satellite as well right we have Bitcoin and satellite so it's it's Everywhere it's not just you know I Don't worry about just Massachusetts the Connecticut I have to worry about the Whole entire Globe so this is almost Laughable when you read when you know About the technology and you read the Frameworks that are being out there or Uh you know the Howie test you know or Something like that's written in 1960 Whatever it is you know which highlights A very important point in my view of View option of The Regulators right and I say I feel that's you know something That is Pretty much incumbent on us as players In the ecosystem to educate and drive More education and knowledge about what The technology is about so that's you Know The Regulators can you know come up With the rights the right framework Otherwise we're gonna see you know Examples of what you just mentioned Absolutely Julian you're a CEO of a Blockchain company do you agree with With Tim and Smith on on these points of Regulation Yeah absolutely I don't think it should Be it should be and it can be uh over Regulated uh I think especially Europe

Where where we are active or we're Active in in pretty much all the 40-something European countries and There uh there's this new regulation Coming up which is called Mika which is About you know framework for all crypto Asset handling and this it is it is held Super strict so they even tried to ban Things like mining or uh transferring Um from custodial wallets to Non-custodial wallets stuff like that so It's it's really strict how they want to Grasp it Um and as you as you said Michael it's It's really about you cannot grasp this It is it is a free technology it's open Source it's out there it's not going to Go away back to your point uh Smith About regulation about educating The Regulators adding this is super Important they will come to the Conclusion that it is not possible and Also not beneficial to try to Criminalize these things like mining for Example I mean we saw what what um what Happened after China banned mining just The 30 percent of hash power coming from China and this whole huge industry that Was built around it with all the you Know taxpayers and and and Employments And stuff like that it all it all went Away within within a month or two it Just spread around the rest of the the Free World and and just created

Prosperity there so it was really a shot In the foot it's something you cannot You cannot stop Bitcoin doesn't care Um but but I think The Regulators still Are yet to understand this but they will At one point Timmy how are you working With your portfolio of companies to help Them go through this Market cycle Well um for the last two years I always Get it it's like I get nervous during Bull markets and I I feel very Uncomfortable And um and then during bear Market site It's like my time I get all excited Um and so during the bull market I said Oh yeah raise as much as you can just Don't spend it And a few of them actually listened some Of them are running into walls now and Um and so what I've told them is to Focus on your customer figure out how You can get money from your customer see If you can turn profitable I mean that's That's a word that nobody's heard for Five years Um and that um and then of course in in Companies where the burn rate's gotten Too high Um I suggest that it's time to lay some People off and that Um always gets a lot of resistance And so we I tend to say you know you Gotta I remember during the.com bust I said to a company

Uh well you've got how many people do You have 400. and I said well you're Gonna have to cut that to three and they Said 300 and I said no three people Because you you've got a lot of money And you're burning a lot of money but You don't have customers yet you've got To get customers Uh I I think they didn't take my advice And they crashed into the wall and died These spare markets can be short or they Can be long if they're short hey you cut Back and you can always hire those People back later If it's long you're going to be in this For a long time you got to figure out How to make money Um you're not doing anybody any favors By not making money let's meet do you Have any thoughts on on that no I will Totally agree with what team said I Think uh What uh you know Founders and Entrepreneurs Tend to do badly in downturns is react Fast first of all sometimes it takes a Long time for them to realize the Severity of the situation and also build Enough Runway because as Tim said we Don't know if it's going to be three Months six months 12 months or 18. and You have to be you know provide for the Worst and build for that you know worst Case scenario because ultimately you Need to be you need to be able to

Weather the storm and come out uh come Out from from this alive I guess that's The end that's Survival Mode during These times and I think that's what Sometimes gets forgotten is you know we Always Feel that we reached the bottom and it's Going to turn it's going to be a quick Recession and in three months we're Going to be back up and therefore we're Going to absorb all of this but you know Most often than not we are bad at Judging that's one way and we end up and You know we end up and not surviving on What's making it through Yeah I think from a from a Founder Perspective this is really true that you Should you stacked fast and you should Really prepare for the long bear mugs You never know how long it's going to be That's why the closer you come to a Better Market or the more the deeper you Go into the bear Market the more closer You want to think about profitability in Your Runway I'm sorry for that Um and and it's also about the the art Of reassembling resources when Everything is going up yes you can Invest a bit more in marketing because It's easier to get like cheaper Customers then Um but then and you can maybe neglect a Little bit of of the product and and Build up some technical

Um adapt but then when it turns and There's a bear Market uh you definitely Want to stop like all the the the ad Spend and marketing budget because it's Anyway going to be super uh expensive to To get new users but then you should Cherish the users you have and invest More in the product and also invest more In the team I'm actually I know this is Kind of an American thing that's higher In fire whenever there's a bear Market You just uh just fire the majority of The team not really where I come from in Switzerland we really try and we did now Keep all of our all of our people is Only only 21 but still Um because we really really believe that It it's that the power that you have we Need we just need to reassemble things And invest maybe a set more in product Less than marketing but we this is this Is the the core value and the Core Power That we have and we want to keep it Because if we now get rid of half of the Team Um and then in a year from now we yes we Can rehire them Um but it's going going to be super Expensive process to get this Talent Again and to get them productive again Which where you lose maybe in my opinion Even more time and money than if you Just find ways to keep them now and keep Them productive and invest more into

Into the product so that your better Positioned Um when the bear market ends but but Then in the end it's really about Surviving like the ones that survive the The big guys today in the crypto Market Are like the the binance and coinbase And all these kind of guys uh they're Just they're just here uh because they Um survived two three or four uh bear Markets and most most of them don't and The more bear models you survive the Bigger you get absolutely one thing I Learned from martial arts is sometimes Not how good you are it's just how who Can last the longest you know so uh So sometimes that's the truth Um thank you guys very much I really Appreciate you guys being on the panel Today and uh being here Julian linger From uh relay Um Tim Draper from Um everything from Twitter to uh to uh SpaceX to you know you name it I'm it's Amazing you're you know when I was Growing up reading uh you know you know Going to school for everything you were One of the names I read about in books So I'm honored to have you on the on the Podcast so thank you and Samia belridi Uh who's always here thank you very much From keychain Ventures thank you Everybody for uh tuning in and I hope to See you all in the next one thank you