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Cherry Crypto Letter to Investors

Recently, we shared our view on the crypto market with our own investors. Now, we want to share this context more broadly as it may be helpful to founders, LPs, VCs, and others elsewhere.

The last weeks have been a difficult time for crypto. Bitcoin and ETH are down 70%-80% off their all time highs from just a couple months ago, and other assets have fared even worse. Zooming out, the global macro context is shaped by a concoction of soaring inflation, rising interest rates, the war in Ukraine, and supply chain complications caused by the lingering effects of Covid-19. Crypto specifically has further been hit by a credit crunch across the industry sparked by the high profile insolvencies of some major projects and funds. Terra, an algorithmically backed stable-coin, could not maintain its peg to the dollar. Celsius, the crypto lender, halted withdrawals for customers amidst liquidity concerns. And, most recently last week, the large crypto hedge fund 3AC failed to meet margin calls from lenders.

All this has reinvigorated the full spectrum of crypto skeptics to call on the implosion of crypto as an industry, a common occurrence that happens every few years in the midst of a large price downswing. We as a firm, however, have never believed more in the long-term future of the industry. The stream of quality entrepreneurs flowing into the space and the pace of innovation have never been stronger.

While these incidents have unfortunately wiped out a large amount of wealth for investors of all stripes, we also believe that the lessons learned will be beneficial for the long-term health of the space. Large swaths of the industry have cut corners as they compromised prudent decision-making for short-term profits. Building things from the ground up that survive the test of time is hard, and there are no shortcuts. We are confident that this latest downswing will ​​flush out those who were only attracted by crypto’s price volatility and refocus efforts towards sustainable progression and use cases.

Furthermore, the global macro context informs but does not change our investment approach. Ultimately, we are confident the best time to invest into truly great entrepreneurs is now, irrespective of market conditions.

Our strategy since inception has not changed—work with the next generation of entrepreneurs who continue to push the boundaries of what is possible in web3.