Andreessen Horowitz Went All In on Crypto at the Worst Possible Time
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
As cryptocurrency prices soared last year, no investor bet more on the sector than Andreessen Horowitz.
The storied venture-capital firm had developed a reputation as Silicon Valley’s greatest crypto bull, thanks largely to a 50-year-old partner named Chris Dixon who was one of the earliest evangelists for how the blockchain technology powering cryptocurrencies could change business. His unit was one of the most-active crypto investors last year, and in May announced a $4.5 billion crypto fund, the largest ever for such investments.
The timing wasn’t good.
Prices for bitcoin and other cryptocurrencies have plunged this year in the midst of a broad market downturn, erasing billions of dollars in paper gains for Andreessen’s funds. Consumer demand has vanished for some of the firm’s most-prized crypto startups, while others are facing increased scrutiny from regulators.
Andreessen’s flagship crypto fund shed around 40% of its value in the first half of this year, according to people familiar with the matter. That decline is much larger than the 10% to 20% drops recorded by other venture funds, which have largely avoided the risky practice of purchasing volatile cryptocurrencies, according to fund investors.
Despite the record cash pile, Andreessen has dramatically slowed the pace of its crypto investments this year.
Now Mr. Dixon has to convince nervous investors that Andreessen didn’t overplay its hand for the May fund, which other crypto venture capitalists said is too large for a sector headed into a so-called crypto winter.
“They’ve just pushed it so far with crypto that I’m not sure they can rebalance,” said Ben Narasin, a general partner at the VC firm Tenacity Venture Capital.
In an interview, Mr. Dixon said he remains faithful to the crypto-centric vision of the internet called Web3 that underpins Andreessen’s push into the sector—a view that blockchain versions for a range of services will return financial control and power to users in the form of cryptocurrencies they can earn and trade.
Mr. Dixon said that the sector is still in the early stages of acquiring users and that he isn’t sure when mass adoption of blockchain services will occur. Crypto “is about the political and governing structure of the internet,” he said. “We have a very long-term horizon.”
Mr. Dixon’s path from the periphery of Andreessen mirrors the firm’s transformation into a crypto powerhouse.
A coder from childhood who earned master’s degrees in both philosophy and business, he helped found and sell two startups—one in cybersecurity and the other in e-commerce—and co-founded the VC firm Founder Collective. He also nurtured interests in such emerging technologies as virtual reality and 3-D printing.
He joined Andreessen in 2012. The firm, founded three years earlier by Marc Andreessen and Ben Horowitz, was quickly becoming one of the biggest and most influential tech investors, driven by Mr. Andreessen’s famed mantra that “software is eating the world.”
When many major investors still dismissed bitcoin as little more than a haven for money launderers and speculators, Mr. Dixon championed its possibilities, penning blog posts—something of a gospel among young crypto entrepreneurs—that described how bitcoin would create a new, decentralised financial system. Within two years, Andreessen had invested almost $50 million into bitcoin-related projects, including the cryptocurrency exchange Coinbase.
Mr. Dixon’s zeal for the area increased with the 2015 launch of Ethereum, which used the same type of blockchain-based, distributed record-keeping to let developers build applications beyond payments. Mr. Dixon likened Ethereum’s arrival to the creation of the iPhone App Store and said it showed that the crypto-investing universe was larger than imagined. He told Messrs. Andreessen and Horowitz that he wanted to shift his focus away from traditional investing and start a dedicated crypto fund, said people familiar with the matter.
The $350 million crypto fund, launched in 2018, was the first of its kind created by a traditional venture firm. Andreessen remained a bull that year as bitcoin and other cryptocurrencies lost the majority of their value, and raised a second crypto fund in 2020 totalling $515 million.
Mr. Dixon and his team also increasingly touted their vision for Web3. They argued that blockchain’s creation of currency-like tokens for users could give them more control and financial benefit for blockchain-based versions of services such as ride-sharing and social media, undermining the power of dominant tech monopolies.
In addition to investing in crypto companies, Andreessen purchased the tokens they created, effectively betting separately on the company and its product. The unconventional strategy delivered windfalls during the crypto bull market but also made the deals riskier.
As of the end of last year, the first crypto fund had multiplied its initial investment by 10.6 times after fees, making it the best-performing fund on paper in Andreessen’s history, according to documents viewed by The Wall Street Journal.
Andreessen returned over $4 billion of shares to its investors in the two months after Coinbase went public through a direct listing in April 2021, public filings show, making it one of the most-lucrative bets ever made in venture-capital history. Andreessen’s third venture fund, which backed Coinbase in 2013, saw a paper gain of 9.7 times after fees as of Dec. 31, trailing only the first crypto fund in terms of performance at the time, the documents showed.
Buoyed by the returns, Andreessen went on a fundraising blitz. It set out to raise $1 billion for its third crypto fund and ultimately raised $2.2 billion in June 2021.
Mr. Dixon said the crypto team’s strategy was to use its cash pile to write large checks into startups promising to reinvent everything from digital art to online gaming using the blockchain. The aggressive approach often precluded it from coleading rounds with other investors and made the firm a significant shareholder.
Andreessen backed 56 U.S.-based crypto deals last year and was the second-largest crypto funder in terms of investment volume after Coinbase Ventures, according to PitchBook Data Inc. Some early investments seemed to take off. The valuation of OpenSea, a nonfungible token marketplace, soared by over 100 times to $13 billion in January 2022, ten months after Andreessen led an early funding round.
In its push to dominate the sector, Andreessen discarded established investment norms. In November, its investors tried—and failed—to invest in Magic Eden, an NFT marketplace, even though the firm already backed OpenSea, said people familiar with the matter. Venture capitalists have long avoided backing potential rivals because it damages their reputation with founders who dislike the practice. Mr. Dixon said the fund doesn’t back companies that directly compete with its existing portfolio.
Within months, the market turned.
Demand for many Andreessen-backed companies vaporised as users dumped their crypto holdings. OpenSea’s monthly trading volume has plummeted since its December funding round in the midst of a broader collapse in the market for NFTs, while Coinbase’s monthly active users declined 20% in the second quarter from last year’s fourth-quarter peak of 11.2 million. Both companies have cut around one-fifth of their staff this year.
Andreessen is also contending with harsher regulatory scrutiny of crypto startups and the funds that backed them, which is threatening to put an end to the era of loose oversight that enabled the creation of thousands of cryptocurrencies.
The firm is making adjustments. It announced nine crypto startup deals in the third quarter, down from a high of 26 crypto deals in the fourth quarter of last year, according to PitchBook. The firm also marked down the value of its second and third crypto funds this year, though the declines aren’t as severe as what the first crypto fund endured, people familiar with the matter said.
Meanwhile, the firm’s crypto investments are plunging. Solana, an upstart cryptocurrency that the firm bought in June 2021, has shed over 80% of its value since the beginning of the year. In the first six months of this year, Andreessen lost $2.9 billion of its remaining stake in Coinbase as the crypto exchange’s stock price cratered by more than 80%.
Mr. Dixon said the market’s downturn is an opportunity for the fund to continue backing crypto entrepreneurs, similar to what it did in previous down markets.
“What I look at is not prices. I look at the entrepreneur and developer activity,” Mr. Dixon said. “That’s the core metric.”
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Gold is outshining stocks, bonds and crypto. Here’s what’s driving the surge—and how to get in.
Give gold bugs their due. The yellow metal has been a light in the investing darkness. At a recent $3,406 per troy ounce, it’s up 30% this year, to the envy of stock, bond, and Bitcoin holders. Cash-flow purists will call this a flash in the pan, but they should look again. Over the past 20 years, SPDR Gold Shares , an exchange-traded fund, has surged 630%—85 points more than SPDR S&P 500 , which tracks shares of the biggest U.S. companies.
That isn’t supposed to happen. If businesses couldn’t be expected to outperform an unthinking metal over decades, shareholders would demand that they cease operations and hoard bullion instead. So, what’s going on? If this were gasoline or Nike shoes or Nvidia chips, we would look to supply versus demand. With immutable gold, nearly every ounce that has ever been found is still around somewhere, so price action is mostly about demand. That has been ravenous and broad since 2022.
That year, the U.S. and dozens of allies placed sweeping sanctions on Russia, including its largest banks, and China went on a bullion spree. Its buying has since cooled, but other central banks have stepped in. Perhaps this is unsurprising, in light of a decades-long diversification by finance ministers away from the U.S. dollar, which is down to 57% of foreign reserves from over 70% in 2000. But the recent uptick in gold stockpiling looks to JPMorgan Chase , the world’s largest bullion dealer, like a debasement trade. Investors are nervous about President Donald Trump’s tariffs, his browbeating of the Federal Reserve Chairman over interest rates, and blowout U.S. deficits.
It isn’t just bankers. Demand among individuals for gold bars and coins has been surging, with some dealers experiencing sporadic shortages. Gold ETFs were bucking the trend, but flows there have turned solidly positive since last summer, including recently in China. All told, there is now an estimated $4 trillion worth of gold held by central banks, and $5 trillion by private investors. Calculated against $260 trillion for all financial assets, including stocks, bonds, cash, and alternatives, that works out to a global gold portfolio allocation of 3.5%, a record.
What’s next? BofA Securities says that central banks have room for much more gold buying, and that China’s insurance companies are likely to dabble, too. RBC Capital Markets analyst Chris Louney says ETFs could drive demand growth from here, especially if angst reigns. “Gold is that asset of last resort…the part of the investing universe that investors really look for when they have a lot of questions elsewhere,” he says.
Russ Koesterich, a portfolio manager for BlackRock , a major player in ETFs including the iShares Gold Trust , says that gold has proven itself as a store of value, and deserves a 2% to 4% weighting for most investors. “I think it’s a tough call to say, ‘Would you chase it here?’ ” he says. “There have been some pullbacks. Those might represent a good opportunity, particularly for people who don’t have any exposure.”
Daniel Major, who covers materials stocks for UBS , points out that gold miners mostly haven’t wrapped themselves in glory in recent years with their dealmaking and asset management. As a result, a major index for the group is trading 30% below pre-Covid levels relative to earnings. UBS increased its 2026 gold price target by 23%, to $3,500 per troy ounce, before gold’s latest lurch higher. Many miners are producing at a cost of $1,200 to $2,000. Major has bumped up earnings estimates across his coverage. “I think we’re gonna see further upward revisions to consensus earnings,” he says. “This is what’s attractive about the gold space right now.”
Major’s favorite gold stocks are Barrick Gold , Newmont , and Endeavour Mining . More on those in a moment. We also have thoughts on how not to buy gold—and what not to expect it to do: Don’t count on it to keep beating stocks long term, or to provide precise short-term protection from inflation spikes and stock swoons. But first, a little history, chemistry, and rules of the yellow brick road.
The first gold coins of reliable weight and purity featured a lion and bull stamped on the face, and were minted at the order of King Croesus of Lydia, in modern-day Turkey, around 550 B.C. But by then, gold had been used as a show of riches for thousands of years. Ancient Egyptians called gold the flesh of the gods, and laid the boy King Tutankhamen to rest in a gold coffin weighing 243 pounds. The Old Testament says that under King Solomon, gold in Jerusalem was as common as stone. Allow for literary license; silicon, an element in most stones, is 28.2% of the Earth’s crust, whereas gold is 0.0000004%.
Marco Polo described palace walls in China covered with gold. Mansa Musa I of Mali in West Africa, on a pilgrimage to Mecca in 1324, is said to have splashed so much gold around Cairo on the way that he crashed the local price by 20%, and it took 12 years to recover. To Montezuma, the Aztec king whose gold lured Cortés from Spain, the metal was called, as it still is by some in Central Mexico, teocuitlatl —literally, god excrement. Golden eras, gold medals, the Golden Rule, and golden calf—so deep is the historical association between gold and wealth, excellence, and vice that it seems to have a mystical hold on humanity. In fact, it’s more a matter of chemical inevitability.
Trade and savings are easier with money. Pick one for the job from the 118 known elements. Years ago on National Public Radio, Columbia University chemist Sanat Kumar used a process of elimination. Best to avoid elements that are cumbersome gases or liquids at room temperature. Stay away from the highly reactive columns I and II on the periodic table—we can’t have lithium ducats bursting into flame. Money should be rare, unlike zinc, which pennies are made from, but not too rare, unlike iridium, used for aircraft spark plugs. It shouldn’t be poisonous like arsenic or radioactive like radium—that rules out more elements than you might think. Of the handful that are left, eliminate any that weren’t discovered until recent centuries, or whose melting points were too high for early furnaces.
That leaves silver and gold. Silver tarnishes, but rarer, noble gold holds its luster. It is malleable enough to pound into sheets so thin that light will shine through. And, despite the best efforts of Isaac Newton and other would-be alchemists, it cannot be artificially created—profitably, anyhow. Technically, there is something called nuclear transmutation. If you can free a proton from mercury’s nucleus or insert one into platinum’s, you’ll end up with a nucleus with 79 protons, and that’s gold. Scientists did just that more than 80 years ago using mercury and a particle accelerator. But what little gold they produced was radioactive. If you think you can do better, you’ll likely need a nuclear reactor to prove it, but a large gold mine is one-fifth the cost, and we have to believe the permitting is easier.
We passed over copper due to commonness, but it has become too valuable to use for pennies. The 95% copper content of a pre-1982 penny is worth about three cents today. The equivalent amount of silver goes for $3.10, and gold, more than $320. But the three trade in different units. A pound of copper is up 17% this year, at $4.72. Silver and gold are typically quoted per troy ounce, a measure of hazy origin and clear tediousness, which is 9.7% heavier than a regular ounce. A troy ounce of silver is $32.70, up 13% this year.
Confused? This won’t help: The purity of investment gold, called its fineness, is measured in either parts per thousand or on a 24-point karat scale. A karat is different from a carat, the gemstone weight, but our friends in the U.K.—who adopted troy ounces in the 15th century—often spell both words with a “c.” Gold bricks like the ones central banks swap are called Good Delivery bars, and weigh 400 troy ounces, give or take, worth more than $1.3 million. If you buy a few, lift with your legs; each weighs a little over 27 regular pounds (as opposed to troy pounds, which, it pains us to note, are 12 troy ounces, not 16).
There are many options for smaller players, like Canadian Maple Leaf coins, which are 24-karat gold; South African Krugerrands, at 22 karats, and alloyed with copper for durability; and Gold American Eagles, 22 karats, with some silver and copper. Proof coins cost extra for their high polish, artistry, and limited runs, and may or may not become collectibles. Humbler-looking bullion coins are bought for their metal value. Prefer the latter if you aren’t a coin hobbyist. Avoid infomercials and stick with high-volume dealers. Even so, markups of 2% to 4% are common. Costco Wholesale , which sells gold in single troy ounce Swiss bars, charges 2%, but often runs out, and limits purchases to two bars per member a day. Factor in the cost of storage and insurance, too.
ETFs are more economical. For example, iShares Gold Trust costs 0.25%, not counting commissions. For long-term holders, as opposed to traders, there is a smaller fund called iShares Gold Trust Micro , which costs 0.09%.
Resist fleeing stocks for gold. The surprisingly long outperformance of gold is mostly a function of its recent run-up. From 1975 through last year, gold turned $1 invested into about $16, versus $348 for U.S. stocks. That starting point has a legal basis. President Franklin Roosevelt largely outlawed private gold ownership in 1933; President Richard Nixon delinked the dollar from gold in 1971; and President Gerald Ford made private ownership legal again at the end of 1974.
Gold has been a so-so inflation hedge over the past half-century, and at times a disappointing one. In 2022, when U.S. inflation peaked at a 40-year high of over 9%, the gold price went nowhere. The problem is that high inflation can prompt a sharp increase in interest rates. “If people can clip a 5% coupon on a T-bill, often they’d prefer to do that than have either a lump of metal or an ETF that doesn’t produce cash flow,” says BlackRock’s Koesterich.
Likewise, while gold has generally offset stock declines this year, it hasn’t always done so in the heat of the moment. Recall tariff “liberation day” early this month, which sent U.S. stocks down close to 11% in three days and pulled gold down nearly 5%. “This isn’t an uncommon scenario,” says RBC’s Louney. “When investors were losing elsewhere in their portfolio, gold was sold as well to cover those losses.”
Our top tip on how gold behaves is this: It doesn’t. People do the behaving, and they are appallingly unreliable. Use bonds as a stock market hedge. If they don’t work, fall back to patience. For inflation protection, think of assets that are a better match than gold for the goods and services that you buy every week. A diversified commodities fund has precious metals but also industrial ones, along with energy and grains. Treasury inflation-protected securities are explicitly linked to the consumer price index, which measures inflation for a theoretical individual whose buying patterns differ from your own, but are close enough.
Own a house. Stick with a workaday, reliable car. Yes, cars deteriorate. But so does nearly everything on a long enough timeline. Rely mostly on stocks, which represent businesses, which wouldn’t endure if they couldn’t turn raw inputs like commodities into something more profitable. There’s even a miner, Newmont, in the S&P 500.
Speaking of which, UBS’ Major recently upgraded both Canada’s Barrick and Denver-based Newmont from Neutral to Buy. “Both very much fall into that category of having a challenging recent track record,” he says. Newmont has lost 20% over the past three years while gold has gained 76%, which Major blames on difficult acquisitions and earnings shortfalls. Barrick, down 8%, has been in a dispute with Mali since 2023, when its government instituted a new mining code that gives it a greater share of profits. In recent days, authorities have shut the company’s offices in the capital city of Bamako over alleged nonpayment of taxes.
These are the sort of headaches that Krugerrands in a safe don’t produce. But Major calls expectations “adequately reset,” free cash flow attractive, and guidance achievable. Newmont, at 13 times next year’s earnings consensus, is selling assets, and Barrick, at 10 times, has healthy production growth.
Major also likes London-based, Toronto-listed Endeavour Mining , up 40% over the past three years and trading at nine times earnings, although he says it has “higher jurisdictional risk.” It is focused on West Africa, especially Burkina Faso, which had a coup d’état in 2022. You’d think the stock would be doing worse amid such political upheaval. Then again, Burkina Faso since 1966 has had eight coups, five coup attempts, and one street ousting of a president who tried to change the constitution to remain in power. That works out to an uprising every four years, on average.
Montezuma’s scatological name for gold might have been prescient, considering the sometimes-odious consequences for small countries that find it.
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