Is Crypto VC dying? What do industry insiders think?

  • A debate on whether "crypto VC is dead" has emerged, fueled by a significant downturn in funding. In Q2 2025, crypto startups raised only $1.97 billion, a 59% drop from the previous quarter, marking the second-lowest quarterly total since late 2020.

  • High Failure Rates: Data shows nearly 45% of VC-backed crypto projects from 2023-2024 have ceased operations, with 77% generating under $1,000 in monthly revenue. Major firms like Polychain Capital and a16z saw over two-thirds of their projects fail.

  • Increased VC Rationality: VCs are now more selective, shifting focus from speculative tokens to projects with clear, sustainable business models and predictable revenue, such as stablecoins and payment infrastructure. Many are avoiding heavy promotion and community building for early-stage projects.

  • Shift in Capital Flow: Investment is moving away from startups and towards digital asset finance companies that accumulate established cryptocurrencies like Bitcoin and Ethereum. This reflects a market demand for profitability and a clearer path to yield, breaking the long-term correlation between Bitcoin prices and VC activity.

  • Market Maturation: The industry is seen as entering a new phase, driven more by institutional adoption than meme coin trends. This maturity has slowed pre-seed investments, with VCs concentrating on later-stage projects.

  • Evolving VC Roles: To adapt, some VCs are transforming into market makers, incubators, or adopting investment banking models. The future may see a divide between VCs affiliated with major exchanges and large, marketing-savvy firms like a16z.

  • Sector-Specific Funding: Despite the overall downturn, sectors like mining attracted significant capital in Q2 2025, and areas such as AI, blockchain infrastructure, and trading continue to see robust deal activity.

Summary

Author: Golden Finance

Recently, there has been a discussion in the cryptocurrency circle about whether "crypto VC has died out."

Galaxy Research's latest venture capital report shows that cryptocurrency and blockchain startups raised a total of $1.97 billion across 378 deals in the second quarter of 2025, a 59% drop in funding and a 15% drop in deal count compared to the previous quarter. This is the second-lowest quarterly total since the fourth quarter of 2020.

Independent researcher Haotian pointed out, "Four years later, VCs haven't even found a sustainable investment model. Top VCs secure the best terms, the lowest prices, and early exits, while most smaller VCs rely on follow-on investments to reap the benefits, treated as "buyers" by large institutions. Most VCs are simply "large leeks," essentially gambling on the odds by diversifying their portfolios. The market is searching for a possibility that eliminates the need for VCs."

What do industry insiders think about the demise of crypto VC? Is the cryptocurrency VC industry really dying out?

1. Crypto VCs Suffer a Disastrous Setback

A joint study by Chainplay and Strorible shows that among the 1,181 crypto projects that received venture capital between January 1, 2023 and December 31, 2024, nearly 45% have ceased operations and 77% have monthly revenue of less than $1,000.

Among venture capital firms, Polychain Capital had the highest investment failure rate, with 44% of its portfolio projects terminated and 76% of its projects failing to generate effective revenue. Yzi Labs (formerly Binance Labs) had a 72% failure rate for projects it supported. Top venture capital firms such as Circle, Delphi Ventures, Consensys, and Andreessen Horowitz also saw a large number of projects they supported cease operations, with more than two-thirds of their projects failing.

Among angel investors, former Coinbase CTO Balaji Srinivasan has the highest proportion of "zombie projects" at 57%, followed by Arthur Hayes at 34%, Santiago Santos at 15%, and Sandeep Nailwal and Stani Kulechov, with 10% of their projects each shutting down.

Data shows a significant correlation between funding size and success rate. Projects that raised over $50 million had significantly lower failure rates, while 33% of projects that raised less than $5 million failed and 20% ceased operations.

VCs are more rational

Jademont, founding partner and CEO of Waterdrip Capital, pointed out, "Why is VC almost extinct? Take a look at the announcements from the top CEXs over the past two years. They simply tell you something with a few letters is going public, and everyone's going to gamble! They don't waste a single word explaining why the project is being listed or what it does. Many retail investors, after months of gambling with the dealers, have no idea what they're trading, let alone how to use the products. CEXs have become heavily casino-like, with even occasional cheating.

It's said that the top criteria for CEX listing are community support, sufficient market-making funds, and willingness to contribute a sufficient number of free chips. If these are the criteria for listing, then the existence of VCs is truly meaningless. Most VCs lack the ability to build a community for projects and are unwilling to help them manage the market and gamble with retail investors.

So rather than saying VCs are dying out, it's more like they've made other choices. First, they're reluctant to promote their products. Promotion has little practical value beyond PR. If a project fails, they'll even be criticized by the community. Even with the most dedicated teams, early-stage projects have a high probability of failure. It's better to wait until a project becomes larger before announcing their investment. Second, many projects don't even have plans to issue a token or don't target retail investors, so promotion isn't necessary. Just wait until the IPO bell rings and celebrate. Looking at the schedule, at least three to five early-stage investment projects will be listed on Nasdaq next year. Token issuance isn't the only exit path for startups these days.

Cryptocurrency venture capitalists are reducing their risk appetite, shying away from the buzz of the month, and taking a more critical view of their investments, said Sylvia To, director of Bullish Capital Management. “You really have to start thinking, ‘The industry is building this infrastructure, but who is using it? Is there enough volume? Is there enough volume being generated through these blockchains to justify all the capital being raised?’”

In 2025, many projects are raising capital at inflated and often unjustified valuations, relying heavily on future cash flow projections.

3. Theory of Changes in Capital Flows

The long-term correlation between Bitcoin prices and VC is broken and “difficult to recover.” This disconnect stems from waning interest among venture capitalists and the market’s increasing emphasis on Bitcoin accumulation over other investments.

 Cryptocurrency-focused venture capital is struggling to recover to its 2021 highs. Source: Galaxy Research

Data from Insights4VC shows a shift in capital flows. Digital asset finance companies (vehicles that primarily raise funds for cryptocurrency purchases) have attracted the majority of investment this year, attracting $15 billion to accumulate holdings of Bitcoin, Ethereum, and other tokens as of August 21st.

The divergence between large investors hoarding cryptocurrency and startups seeking venture capital reflects a shift in investor sentiment. Bitwise CEO Hunter Horsley stated that a growing number of supporters are demanding a clearer path to profitability and a sustainable business model. The pursuit of yield is driving Wall Street investment in Ethereum. "If you take $1 billion in ETH, put it into a company, and stake it, all of a sudden you start making a profit. Investors have become accustomed to companies that are profitable."

Nick Tomaino, founder of 1confirmation, once wrote on the X platform that the rise of Ethereum means the "death of crypto VC" and that 99% of crypto VCs will soon disappear. Being in the right place at the right time, with access to institutional capital, without vision or creativity, and staying aligned with users is the only way to long-term development.

4. Market Maturity Theory

Eva Oberholzer, chief investment officer at venture capital firm Ajna Capital, said venture capital firms have become more selective in the crypto projects they invest in, indicating a shift from the previous cycle due to market maturity. “We’ve reached a different phase in cryptocurrencies, similar to each cycle we’ve seen with other technologies in the past.”

Market maturity has slowed the pace of pre-seed investments as VCs shift their focus to mature projects with clear business models. "It's more about predictable revenue models, institutional dependency, and irreversible adoption. So, what we're seeing now is that crypto is not driven by any meme coin craze or other trends, but more about institutional adoption. VCs are currently focusing on stablecoin projects and investing in other forms of payment infrastructure that can generate fees."

The shift in venture capital activity reflects a broader trend in institutional cryptocurrency investment and a focus on revenue-generating digital asset businesses, rather than the price speculation that drove investment in previous cryptocurrency cycles such as the 2021 bull run.

5. The Future of VC

Trader Tong Junjun pointed out, "During the last bull market, VCs were dream factories, telling stories, raising valuations, and selling to secondary investors. This time, they've found themselves being exploited by market makers and traffic drivers. The so-called collapse of investment logic is actually a loss of voice. VCs are no longer investing in projects. Some have become market makers, others incubators, and even more are imitating the investment banking model, relying on liquidity and commissions to survive."

Quantitative trader Ares pointed out that the responsibilities of VCs in traditional industries are simply to provide funding and resource support, which is particularly effective in environments where financing is difficult and listings are stringent. However, in the cryptocurrency world, the environment seems to be quite different, with the difficulty of financing and the requirements for listing on exchanges being vastly different. Therefore, VCs must adapt accordingly to adapt to the crypto investment and financing environment. I believe that VCs in the crypto world will be divided into two categories: VCs from leading exchanges—investors who essentially have a stake in the exchange listing queue—and VCs with significant market share, such as a16z, who understand the crypto world, excel at marketing, and offer unwavering, one-stop service.

According to a Galaxy Research report, in Q2 2025, the mining sector attracted a significant amount of funding (approximately over $300 million)—the first time in recent years that it has held the highest share. During the same period, sectors such as exchanges, lending, Web3, NFTs, gaming, DAOs, the metaverse, and infrastructure continued to account for a significant number of investment projects. VC activity overall remained robust and healthy, with sectors such as artificial intelligence, blockchain infrastructure, and trading continuing to attract deals and funding, and pre-seed financing activity also remaining stable.

Conclusion

Thirty years in the east, thirty years in the west. The crypto VCs that drove the last bull market have cooled this time around. Whether VCs are becoming more rational, capital flows are shifting, or the crypto market is maturing... Regardless of which narratives market participants agree on, perhaps the days of VCs making easy money are truly over. The time for VCs to address this issue isn't about clarifying whether they're still around, but rather demonstrating through concrete actions that they're living a better life.

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Author: 金色财经

This article represents the views of PANews columnist and does not represent PANews' position or legal liability.

The article and opinions do not constitute investment advice

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