The venture capital funding landscape for crypto startups has yet to fully recover despite recent regulatory clarity in the U.S. While there were signs of a rebound in the months following President Donald Trump’s election, analysts point to underwhelming performance and investor skepticism as key factors hindering a resurgence in VC investments.
MV Global partner Tom Dunleavy highlighted that the crypto industry saw excessive capital inflows during 2021 and 2022, but these did not translate into proportional returns for investors. This disparity has damaged confidence in the sector and subsequently reduced the flow of VC money. Dunleavy noted that venture firms focused on short-term token gains rather than nurturing long-term businesses, leading to a lack of high-quality projects in the market.
The average monthly VC funding for crypto startups peaked at $3 billion in 2021 but declined by almost 50% to $1.88 billion the following year. In 2024, this trend continued with only $801 million raised. While there was a slight uptick in December 2024, with VCs investing over $1 billion in crypto companies for the first time since April, the growth has been relatively subdued considering the improved regulatory environment in the U.S.
Mickey Hardy, chairman of Arcadia, echoed Dunleavy’s sentiments, pointing out that many projects funded during the peak fundraising years are no longer operational or have ceased activity abruptly. This has heightened caution among investors, who are now more skeptical about the viability of new crypto startups. Despite these challenges, Hardy believes that venture capital activity will resume once the market stabilizes, particularly with Bitcoin’s strengthened position as a recognized asset.
While regulatory improvements have created a more structured environment for crypto businesses, there is still a lingering sense of investor apprehension due to previous losses and a shift in risk appetite. Dunleavy also acknowledged that funding could make a comeback in the future, but it may take some time for investor sentiment to fully recover.
In conclusion, while the crypto industry has seen some setbacks in VC funding, there is optimism that with time and a more stable market environment, investments in crypto startups will bounce back. It’s essential for both investors and startups to learn from past failures and work towards building sustainable, long-term businesses in the evolving crypto landscape.