Crypto VCs: When the Market Sucks, They Suck Less!

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Venture capital is the lifeblood of the startup world in Web3 and crypto, which is like a very expensive and slightly unstable trampoline. Entrepreneurs need to raise money for projects in order to hire talented people, pay operating costs, and perform marketing for scaling a business. 🧠💰 

VCs, of course, are more than happy to do this, as they get a chunk of the long-term payoff – if there ever is one, of course. Most startups fail, and the business is highly predicated on unicorns to drive venture funds. Because nothing says ‘I’m a visionary’ like betting on a unicorn that might just be a donkey in disguise. 🦄🐴

The crypto market is unique, to be sure, with cryptocurrencies also playing a role as many startups launch tokens. However, the digital asset market hasn’t been performing as well. It’s like trying to build a sandcastle during a hurricane. 🌪️

Sine October, when the price per 1 BTC hit an eye-watering $126,000 record level, the orange asset is in the red by 25%. Because nothing says ‘I’m a good investment’ like losing a quarter of your value in a month. 🍊📉

Crypto prices impact the VC market, and dynamics have certainly changed for startups to raise money. What’s the outlook looking like overall right now? It’s like asking a confused penguin what the weather’s like in the Sahara. 🐧☀️

“Market cycles may influence investment sentiment and can slow or accelerate the pace of closing deals,” noted Stefan Deiss, CEO of Hashgraph Group, focused on VC in the Hedera ecosystem. “Because nothing says ‘I’m a reliable investor’ like being influenced by the weather.” ☁️💼

Lowered Expectations From Venture Capital

One of the first things that happens when crypto trends to a downward cycle is that startup valuations go lower. It’s like trying to sell a lemonade stand in a drought. 🍋💧

It may not seem directly related, but the concept of the “hot rounds” for fashionable startups cool off, and VCs don’t really go for sky-high valuations so much, noted Artem Gordadze, an angel investor in NEAR Foundation and advisor at startup accelerator Techstars.

“When Bitcoin is trading at high levels, like the perceived $100k level, startup valuations are commensurately high,” Gordadze said. “This creates a challenging dynamic: VCs must justify the entry valuation based on a potential future price that must materialize within the investment horizon to generate acceptable returns.”

It seems the theory that Bitcoin always goes up is not one venture capitalists are attuned to. Because of long time horizons for VC investments, they have seen many cycles, especially with Bitcoin. In addition, many VCs often call November and December “write-off” months. This means they don’t expect to do too much work during the fourth quarter and the holiday season, preferring to start investing anew after the calendar turns to another year. Because nothing says ‘I’m a dedicated professional’ like taking a break during the holidays. 🎄💼

The Pragmatic View

The view of venture from 10,000 feet up, as it pertains to the crypto sector specifically, is one of spending, but less volume. Case in point: Prediction market Polymarket closed $1 billion, while Kraken took in $800m in funding this quarter. It’s like a buffet where the main course is just a single grain of rice. 🍚🍽️

“Market downturns sharpen the focus because you stop seeing price action as a signal but rather resilience in execution and product as the main indicators that count,” said Hashgraph Group’s Deiss. “Downturns push investors to focus more on fundamentals rather than short-term momentum.” Because nothing says ‘I’m a serious investor’ like ignoring the noise and focusing on the fundamentals. 🧠📊

That short-term momentum may often be more hype than anything else. And many big venture-backed projects doing a TGE have not performed very well this year. This includes PUMP (down over 50% in 2025) and Berachain (a 91% drop since its February launch). It’s like betting on a horse that’s clearly not going to win, but you’re too stubborn to admit it. 🐴💸

“High volatility and uncertain early-stage valuations are driving a significant shift in capital deployment, favoring strategies with shorter liquidity cycles and better pricing control,” added Gordadze. “Because nothing says ‘I’m a cautious investor’ like avoiding risks.” 🚫⚠️

The Lock-Up and the Liquidity

One of the most distinctive aspects of the cryptocurrency industry is the token generation event, or TGE. The successor to ICOs of days past, Coinbase is now facilitating TGEs after its $375 million purchase of investor platform Echo. It’s like replacing a broken toaster with a more expensive one. 🍞💰

However, once a token launches, there are a few metrics that are unique to crypto that venture investors must closely monitor. One is the lock-up, whereby, at TGE, not all tokens are circulating in the market yet; there is a period of holding these assets back. This is designed to better incentivize a network’s participants, from team members to community airdrops and foundation efforts. It’s like a secret handshake that only the initiated can understand. 🔐🤝

Then there’s fully diluted value, or FDV – this is the total number of tokens times the price – basically a market cap for all tokens, even if they haven’t been unlocked yet. And when markets gyrate, it’s really hard to forecast any potential exits of tokens for VCs, which can be a conundrum. Recently, Arthur Hayes of Maelstrom Capital went on a rant about lock-ups, specifically related to Monad. As a trader, Hayes clearly doesn’t like the illiquidity of these types of tokens. Because nothing says ‘I’m a trader’ like hating illiquidity. 🚫📈

“Given the average token or equity vesting/lock-up period of 12 to 48 months, VCs must model the market’s likely condition when these lock-ups end,” said Gordadze, the Techstars mentor. “The entry price must be strategically set to ensure a profitable exit, making long-term market forecasts crucial for deal finalization.” Because nothing says ‘I’m a long-term thinker’ like predicting the future. 🧠🔮

The Future of Crypto VC Investment in 2026 and Beyond

On the subject of market forecasts, VCs surely love to talk about the future. And for crypto, it seems, given favorable US regulatory actions in 2025, that next year could be much better. Is that just investor hopium? Maybe. But rose colored (or green) glasses are always the default mode for VCs. Optimism, of course, always wins. Because nothing says ‘I’m optimistic’ like wearing rose-colored glasses. 🌈🕶️

“2026 is shaping up as a year defined by real utility – DeFi will make a strong comeback with enhanced momentum and maturity and the stablecoin moment becomes background,” noted  Deiss. “Stablecoins certainly had a moment this year, although they are the boring infrastructure that’s going to power, say, the next Polymarket, which uses USDC on Polygon as its main coin and chain. It’s like the unsung hero of the blockchain world. 🧱🏗️

“Now that stablecoins are finally going mainstream and banks are rushing to get in, the next level will be services for users that are powered by these assets behind the scenes,” noted Gordadze. “Because nothing says ‘I’m innovative’ like combining AI with blockchain.” 🤖🧱

The most significant growth areas will likely reside in the intersection of AI/Blockchain and RWA/Blockchain, as these represent the greatest opportunities for real-world impact and institutional revenue generation. 🚀

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2025-12-19 06:37