(Bloomberg) — Crypto venture capital funds are confronting an identity crisis.
Plummeting digital-asset prices and a wave of market consolidations are exposing the fragility of an industry that boomed on speculation but has struggled to build sustainable, revenue-generating businesses.
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Retail traders have continued to drift away from digital art and memecoins, while token prices have crashed — a casualty of the rug pulls and day-trader blowups that followed last year’s market crash. Now crypto VCs are being pulled toward a more traditional startup playbook: product-market fit, monetization, and long-term user retention.
The pressure is mounting as the broader market sours. Bitcoin plunged anew last week to erase nearly 50% from October’s record high, before rebounding. Altcoins have fared worse: one guage tracking smaller tokens is down as much as 70% year over year. Despite a crypto-friendly White House and permissive regulation, retail demand — once the flywheel for token-driven VC logic — has cratered.
Crypto-native funds are gravitating toward better-performing corners of the market, including stablecoin infrastructure and on-chain prediction markets, while some are also expanding into adjacent sectors like fintech and AI. But with traditional firms gaining ground, crypto-native expertise is no longer enough.
“The market is consolidating around what’s actually working,” said Santiago Roel Santos, founder and chief executive officer of crypto private equity firm Inversion. “Web3 as a category is largely uninvestable for now. People have moved on from NFTs, gaming, and the next incremental DeFi platform built for its own sake. Even crypto-native VCs with dry powder are pivoting hard toward fintech and stablecoin plays, and prediction markets. Everything else is struggling to get attention.”
Crypto-native funds like Mechanism Capital and Tangent have begun shifting their focus toward deep tech — including investing in robotic startups like Apptronik and Figure — a sign of how far the center of gravity has moved from crypto’s core. Multicoin Capital, a prominent investment firm, said last week that co-founder Kyle Samani was stepping back to pursue interests in areas like AI, longevity, and robotics.
All of this is happening despite a decent fundraising year, with venture firms pouring $18.9 billion into crypto startups in 2025, according to data compiled by Blockworks, though that’s below the speculative highs of 2021 and 2022. That figure also excludes investment in digital-asset treasuries, an experiment that has misfired — draining both capital and momentum from the broader industry. Nearly a third of 2025 VC total went to just four deals, including Binance and Polymarket, underscoring how concentrated last year’s capital deployment really was.
