Bitcoin could be heading for another ‘Crypto Winter,’ while A16Z is doubling down on crypto with a $2.2 billion fund.

Hello, and welcome to the latest episode of Overbit Insights. Our first story is about Bitcoin’s recent slump. New Bitcoin investors were swept up in the excitement of the digital currency’s most recent dramatic climb. But, unfortunately, they are now on the other side of the experience.

Bitcoin increased in value from $5,000 in March 2020 to over $64,000 by April 2021. It then dropped to as low as $29,002 before settling at $32,212 on Friday. Despite how severe the recent selloff has been, it is hardly the worst in the digital currency’s 12-year existence. According to Visual Capitalist statistics, Bitcoin has experienced 14 selloffs of more than 30%, six of more than 50%, and three of more than 80% since 2012.

The most severe of the selloffs were followed by extended periods of flat trading. It’s a cycle that’s become known as “crypto winter.” For example, Bitcoin increased tenfold in October and November 2013 but plummeted 87 per cent through January 2016. In 2017, the price nearly doubled, only to fall 84 per cent the following year. It did not return to its prior high until late 2020.

Bitcoin is mainly driven by sentiment and risk appetite, according to DailyFX analyst Peter Hanks. Once an asset driven by such variables begins to fall, it is easier for it to continue falling, he claims. “I believe Bitcoin is doomed to greater losses here,” Mr Hanks said. With $30,000 pierced, the next significant threshold is $20,000, he claims. “If it breaks that, crypto winter will undoubtedly return.”

A new group of purchasers has fuelled each cycle’s advance, and each selloff has seen a large number of them exit the market. That might happen again. According to J.P. Morgan’s analyst Nikolaos Panigirtzoglou, the main concern for Bitcoin isn’t China’s crackdown on cryptocurrencies or Elon Musk’s caustic comments. Instead, its issue is that money is exiting the asset class.

Closing out today’s edition of Overbit Insights, we pivot towards the other side of the aisle, where one sizeable institutional player certainly seems to be betting on a ‘crypto summer’.

Just a few days ago, Andreessen Horowitz announced its so-called ‘Fund III’ – the third incarnation of its cryptocurrency-targeted fund. At $2.2 billion, ‘Fund III” proudly sits as the firm’s largest vertical-specific fund ever, by a longshot.

The new multibillion-dollar fund demonstrates how institutional investors are becoming more comfortable with cryptocurrencies and how Andreessen Horowitz’s assets under management have been rapidly growing to compete with other deep-pocketed firms such as the ever-prolific Tiger Global.

Some of the firm’s other major crypto bets include NBA TopShot maker DapperLabs which hit a $7.5 billion valuation this spring. The firm also invested in blockchain infrastructure startup Dfinity, which raised at a $9.5 billion valuation this past September.

GPs Chris Dixon and Katie Haun will manage fund III, but the company has already begun assembling a more comprehensive management team focused on the crypto sector.

Tomicah Tillemann, who formerly worked as a senior assistant to President Joe Biden and as chairman of the Global Blockchain Business Council, will be the global head of policy at a16z Crypto. Rachael Horwitz, who formerly worked as Coinbase’s first VP of Communications, is also joining as an operational partner, overseeing marketing and communications for a16z crypto.

Yet again, we continue to see the tug-of-war in the nascent cryptocurrency industry, where different players are continually jockeying for position. Where some see cause for panic, others see an opportunity.

Thanks as always for reading, and we look forward to seeing you next week with Overbit Insights.

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