Venture Capital’s risk appetite in bear market

Nobody likes to lose money. That is a fact. But when the bear market hits, many retail investors will inevitably suffer. A retail investor is — by definition — the average person that in the spare time places some savings on one or more stock exchanges, hoping that the price of the shares will eventually go up.

Often supported by a broker, retails investors are rarely looking at their daily performance, aiming mostly at long term gains.

Similarly, retail investors in cryptocurrency usually purchase and sell currencies at a spot price. The problem with spot trading, is that retail investors miss out on all of the profit opportunities available when the market goes down. For such an endeavour, traders need to use derivative instruments, which — among others functions — allow to short investment positions. So, when the market goes down, profits are available to grab.

During the past 2 weeks, and continuing these very days, both the traditional stock market and the crypto currencies are facing a downwards trend that seems to have gobbled up all the profits generated over the past 2 years.

However, those that seem to be hit the worst, are retail traders. In my latest column we have directed the Luna / Terra fiasco. On the other hand, when it comes to professional investors, which are able to trade, hedge, and speculate virtually 24/7 with all sorts of existing tools, a bear market could represent a superb profit opportunity.

Yesterday at dinner, I was casually attempting to explain my job to my cousin. When I mentioned that I was involved in crypto and blockchain, he immediately said: “Oh, I heard that things are bad now…”.

That is the typical retail investor’s mindset. Market goes up: good. Market goes down: bad. But in the eyes of a professional trader, as well as in Venture Capital, the equation above does not hold much water. On the contrary, the opposite can equally be true.

Venture Capital tends to look at the long term impact that a project can create on the entire ecosystem. The way I put it down for my cousin goes this way: when a company builds a highway, even if the company goes bust, the highway remains intact.

Moreover, the highway now connects points that were not previously linked, thus offering many more opportunities. In this simplified analogy, the retail investor would mourn the company’s bankruptcy, the professional investor would have profited by shorting the share, while the Venture Capital would start warming up the engines to invest in companies able to use the highway.

“We are confident that the market will react. Many innovations have bloomed in blockchain and web 3.0,” commented Andrei Grachev, Leader at VRM Ventures. “We are committed not only to provide funds, but also to offer strategic support to the projects that VRM is investing into.”

According to Dragonfly Capital: “Lots of talent will flood onto the market in the next 3 months. The bargaining power between talent and companies will shift closer to normal. The market will be less speculative for a while, especially as retail investors are no longer driving as much flows. Many narratives will get reset. We will not see the same old stories play out.”

Overall, the industry’s sentiment seems positive, despite the losses suffered by retail investors.

OFTEN SUPPORTED BY A BROKER, RETAILS INVESTORS ARE RARELY LOOKING AT THEIR DAILY PERFORMANCE, AIMING MOSTLY AT LONG TERM GAINS