Crypto VC on Where the ‘Biggest Alpha’ Is During a Bear Market


  • Vance Spencer is the co-founder of the $ 1.4 billion investment firm Framework Ventures.
  • Spencer explains where the “biggest alpha” is during a bear market.
  • The company was one of the first sponsors of loan giant Aave and blockchain game developer Illuvium.

In 2014, Vance Spencer and Michael Anderson stumbled upon cryptography through the Ethereum White Paper. The two, Spencer said, were some of the first thousand to download the document and read it.

“Our perspective at the time was,‘ Who’s the 18-year-old, Vitalik Buterin? ’” Spencer told Insider. “But I’ve always had an interest in marginal technology. The next step seemed logical. ”

The two left their jobs at


Netflix

and Snapchat to start a blockchain-based sports collection startup called Hashletes that they later sold to start investing in DeFi, or decentralized financing.

“Right now we were living in Michael’s parents’ house,” Spencer said. “There was no concept of failure because the case we failed in was almost too discouraging to consider.”

In 2019, Spencer put all his money into being one of three LPs in Framework Ventures, a fund that would soon become one of the largest DeFi investment firms in the entire crypto.

“We put all our chips and money on the table in terms of supporting the fund,” Spencer said.

Framework Ventures was formed under the thesis that blockchains are built for wider use cases than what the market had at the time.

Tons of people had crypto, Spencer said, but they didn’t have the ability to make the most of it, including loans, bets, and yield crops.

At that time, however, the DeFi market was worth less than a billion dollars.

“We decided on DeFi as our first major thesis because it was on the horizon. We knew it was going to work soon and we could give it a lot of impetus,” he said. The company later announced its first $ 15 million fund in 2019.

Framework Ventures is very committed to the sector with investments


liquidity

Synthetix protocol, blockchain oracle network Chainlink and the loan giant Aave. Synthetix (SNX) and Chainlink (LINK) increased 137% and 264%, respectively, over the course of a year.

In 2020, the company used a $ 8 million increase to launch Framework Labs, a development arm of the venture company that builds proprietary software to help scale and incubate its current investments.

This is part of the company’s “first in technology” strategy, Anderson said. This has led the $ 1.4 billion company to become one of the largest liquidity providers for DeFi projects.

“That’s our best source of alpha in the future,” Anderson previously told Insider.

Introducing a $ 1.4 billion cryptocurrency investment company

Last month, Framework Ventures announced a $ 400 million fund, allocating half of the capital to blockchain gaming projects. The company previously invested in the game developer to win Illuvium and the GameFi Polemos platform.

“We went from DeFi because it was the first category in which the product market suited games,” he said. “Now we’re going for more mainstream and more consumer investments.”

These investments, Spencer says, also reflect the direction of the industry.

Blockchain games earned $ 2.5 billion in investments in the last quarter, according to a recent report from BGA and DappRadar which predicts that investments in nascent space will increase by 150% this year. VC firm Andreessen Horowitz announced a $ 600 million fund dedicated to gaming investments on May 18th.

When choosing your next company, Spencer said, the company is looking for a team that is willing to take risks and be competitive. However, this does not have the same capacity as a traditional VC would.

“I think in Web2 that would mean sneaking Stanford students out of college dorms,” he said. “But we really value the non-traditional background.”

Seventy percent of Framework Venture’s portfolio is international, including game developers like Illuvium.

The team also needs to have the technical capability to build its products and be flexible in a murky regulatory environment.

“They also have to be okay with living in the gray area which is the crypto-regulatory atmosphere right now,” he said.

Where is the alpha?

Following the collapse of UST and Luna, broader cryptographic markets also fell. This is also due in part to increases in Federal Reserve rates to soften inflation, as seen in the trading of bitcoins and ethereum in conjunction with risky technology stocks.

Bitcoin and ethereum fell 25.88% and 32.45%, respectively, in the last month, according to Messari. On May 12, cryptocurrencies lost $ 200 billion in a single day.

Before investing, Vance recommends looking at the basics of a project and not what is trending in space right now.

“It wants to be a little countercyclical to whatever the main investment narratives are,” Spencer said, citing NFT PFPs or non-fungible profile picture chips.

Popular collections, which headlines often use on their social media profiles, include the Bored Ape Yacht Club, Cool Cats, and World of Women. NFT individuals from these collections amounted to more than $ 2.7 million in ethereum.

“People thought PFP collections were going to be the future. Probably not going to be the case. It’s probably something with a little more utility,” he said. “Think about the products that people really want to use and guide your career on that.”

In one


bear market

Spencer recommends staying away from trying to predict price action with technical analysis.

“Things that aren’t good uses of your time are doing TA in graphics,” he said, adding that crypto markets are most of the time unpredictable.

Go straight to the source, Spencer said, specifically the Ethereum developer calls.

“That’s where all the alpha is,” Spencer said. “That’s where you can say what will appear on the net and potentially the price that will follow.”

These are public announcements, hosted by the Ethereum Foundation, where users can hear more information about network updates and updates to their blockchain.

“On the trade side, I would emphasize more research, due diligence, and getting involved in something,” Spencer said. “This is the only thing that will keep your interest during the bear markets. It will never be just the prices.”



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