The Impact of Venture Capital on Crypto Markets

Aug 16 / Stephen Pollard

The Impact of Venture Capital on Crypto Markets

  • In traditional finance, Venture Capital (VC) funding fuels early-stage companies in exchange for equity. In the crypto world, the structure is similar—but instead of equity, VCs often receive early access to tokens at preferential prices.

This can have profound effects on a project’s tokenomics, market stability, and long-term performance.

How VC Works in Early-Stage Crypto Projects

  1. Seed & Private Rounds

    • VC firms invest before public access, often paying cents on the dollar compared to eventual listing prices.

    • These tokens are either locked (vesting schedules) or unlocked on day one—impacting market supply.

  2. Tokenomics & Insider Allocations

    • A large percentage of the token supply can be reserved for insiders (VCs, team, advisors).

    • If too much is concentrated in early hands, the project risks supply shocks when these holders sell.

  3. The VC Exit

    • VCs typically aim for liquidity events—major exchange listings, hype cycles, or bullish markets.

    • Once tokens are unlocked, insiders may sell into retail demand, potentially suppressing prices for years.

Case Study: SUI vs KAS

  • SUI: Heavy VC involvement, large early allocations, and structured unlock schedules. While this provides capital for rapid development, it also creates continuous sell pressure.
  • Kaspa (KAS): No VC funding. Fair launch with proof-of-work mining. Coins are earned through network participation rather than early insider deals. This results in wider distribution and reduces the risk of a sudden supply dump.
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The Double-Edged Sword of Crypto VC

Advantages:

  • Brings substantial funding for rapid scaling and ecosystem growth.

  • Offers strategic partnerships and exchange access.

Risks:

  • Centralised supply control can undermine decentralisation.

  • Early investors may prioritise quick returns over long-term project health.

Key Takeaways for Investors

Before investing in a token, read the tokenomics carefully:

  • Who owns what percentage?

  • When do insider tokens unlock?

  • Is the project community-driven or VC-driven?

Our Crypto Masterclass includes a proprietary Crypto Analysis Framework to help you analyse these factors—so you can spot potential red flags before buying.
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Disclaimer:

This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency investments are highly volatile and carry significant risks. Always do your own research and consult with a qualified advisor before making any investment decisions. We do not guarantee the accuracy or completeness of any information provided. Past performance is not indicative of future results.
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