The crypto market should have collapsed in 2022, but VCs like Andreessen Horowitz pivoted from funding startups to funding aggressive lobbying. This political spending created favorable laws, giving a patina of legitimacy to an industry whose business models were unviable under existing securities laws.
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In heavily regulated or legally ambiguous industries, a founder's most valuable asset can be political connections. One startup literally used a pitch deck slide showing its co-founder with prominent politicians to signal their ability to influence future legislation in their favor. This represents a stark, real-world "crony capitalism" business strategy.
Facing an aggressive SEC, Coinbase rejected traditional lobbying and instead launched a two-front war: a grassroots campaign mobilizing its 52 million users and a top-down Super PAC with industry allies. This effective playbook is now being copied by AI and other tech sectors.
Contrary to belief, the crypto industry's primary need is not deregulation but clear, predictable rules. The ambiguous "regulation through enforcement" approach, where rules are defined via prosecution, creates uncertainty that drives innovation and capital offshore.
Bridge was founded just before the 2022 crypto crashes. The collapse of the NFT market, their initial focus, forced them to pivot to stablecoin infrastructure, which proved to be a much larger and more durable market, demonstrating how market shocks can be clarifying.
Despite a public image of libertarian self-reliance, the VC industry's success is built on government support. This includes leveraging state-funded R&D (the internet), lobbying for favorable tax laws (carried interest), and accessing pension funds through legal changes.
Crypto was unique for allowing retail investors access before Wall Street. Now, the market is dominated by venture capitalists who launch tokens at inflated valuations with long unlocking schedules, effectively using retail buyers as exit liquidity.
While the early crypto market was dominated by cypherpunks advocating for anonymity, Coinbase took the opposite approach. They worked with banks and implemented KYC, betting that mainstream adoption required a compliant, trusted platform, even though it alienated the initial user base.
Maja Vujinovic posits that Gary Gensler, despite his pro-crypto past, was strategically positioned by banks to slow innovation. This regulatory friction gave traditional financial institutions the necessary time to understand the technology and formulate their own digital asset strategies before competing.
Prediction markets have existed for decades. Their recent popularity surge isn't due to a technological breakthrough but to success in legalizing them. The primary obstacle was always legal prohibition, not a lack of product-market fit or superior technology.
Despite regulatory clarity and adoption from major financial institutions like JPMorgan, the formation of new crypto companies has decreased significantly since 2021. This lull in new entrants creates a rare and massive opportunity, as the key partnerships that will define the industry for years are being decided now.
