Funding from venture capital firms is considered the lifeblood of the startup world in Web3 and crypto, as entrepreneurs need to raise funds for various projects to hire talented people, pay operational expenses, and market their businesses for growth. Of course, venture capital firms are very willing to do this, as they will receive a share of the long-term returns—if it actually happens, because most startups tend to fail, and this business must rely on unicorns to drive the venture funds.
The crypto market is definitely considered a different market, with digital currencies coming into play as many startups launch tokens. However, the digital asset market has performed poorly since October when the price of 1 BTC hit a record high of 126,000 USD. The orange asset has dropped by 25%.
Crypto prices impact VC markets, and the dynamics of startup fundraising have clearly shifted. So what is the overall trend now?
“The market cycle can influence investor sentiment and can make closing deals slower or faster,” said Stefan Deiss, CEO of Hashgraph Group, which focuses on the VC group within the Hedera ecosystem.
Expectations from venture capital firms have decreased.
When crypto enters a bear market, one of the first things that happen is that the valuation of startups gets assessed lower.
Even though it may not seem directly related, the phenomenon of “hot rounds” for sought-after startups has cooled down, and VCs are less interested in evaluating sky-high valuations as before, said Artem Gordadze, an angel investor in the NEAR Foundation and advisor to the Techstars accelerator.
“When Bitcoin trades at high levels, such as what is believed to be 100,000 USD, the valuation of startups will rise accordingly,” Gordadze said. “This creates a challenging dynamic because VCs need to have a reason to buy at such valuations based on the assumption that prices must rise in the future during the investment period to generate an appropriate return.”
It seems that the theory that Bitcoin will only go up does not align with the thoughts of many venture capitalists, as these long-term investors have seen many market cycles, especially with Bitcoin.
Additionally, many venture capitalists often refer to November and December as the months to pause investing, as they do not expect to work hard in the fourth quarter and holiday season, and often choose to start investing again at the beginning of the calendar year.
Pragmatic viewpoint
From a high-level perspective on venture capital business groups in the crypto sector, what is happening is that there is spending, but the volume of deals has not increased significantly.
For example, the prediction market Polymarket closed a deal at 1 billion USD while Kraken received an investment of 800 million USD this quarter.
In the third quarter, the total fundraising value stood at 4.59 billion USD, but half of that money is concentrated in just seven deals, according to Alex Thorne, head of research at Galaxy.
Deiss from Hashgraph Group noted that the bear market has clarified the focus, as we no longer look at price movements as signals but focus primarily on operational capability and products. This bear market thus drives each investor to emphasize fundamentals over short-term momentum.
This short-term momentum may just be a hype wave more than anything else, and many major projects backed by venture groups and launching new coins (TGE) have not performed well this year. For example, PUMP (down over 50% in 2025) and Berachain (down 91% since launching in February).
Gordadze continued that high volatility and uncertain valuations of early-stage projects are driving a shift in investment strategies towards shorter liquidity cycles and better price control.
Lock-up and liquidity
One of the key features of the cryptocurrency industry is the token generation event, or TGE, which is the successor to past ICOs. Currently, Coinbase is facilitating the organization of TGEs after acquiring the investor platform Echo for 375 million USD, with the EchoMonad project being the first to launch there, raising 296 million USD, and there will certainly be many more projects to follow.
However, once tokens start to launch, there will be some indicators that are unique to the crypto space that venture capitalists need to closely monitor.
One of them is the lock-up, which when the TGE arrives, there will not yet be all tokens circulating in the market. There will be a period of time to hold this asset beforehand. This design creates incentives for network participants, whether team members, airdrop recipients from the community, or foundation operations.
Next is the fully diluted valuation or FDV, which means the total number of tokens multiplied by the price, representing the market value for all tokens, even if they haven't been unlocked yet.
And when market prices fluctuate, it is very difficult to predict token sale opportunities for VC investors, which could be a problem for them. Recently, Arthur Hayes of Maelstrom Capital spoke out about lock-ups, particularly related to Monad. As a trader, Hayes clearly dislikes the low liquidity of such tokens.
From the average lock-up or vesting period of tokens or stocks lasting 12 to 48 months, VC investors need to simulate market conditions that may occur when these lock-ups end, said Gordadze, a Techstars advisor. Prices entering the market need to be set strategically to allow for profitable sales. Thus, long-term market forecasting is even more crucial for closing deals.
The future of VC investment in crypto in 2026 and beyond.
Regarding market forecasts, VC investors often talk about the future. For crypto, if there are favorable regulations in the U.S. in 2025, next year may be much better. Will this be merely a hope for investors?
It may be so, but the positive (or green) viewpoint is often the standard mode for VCs as the expectation of good things tends to prevail.
The year 2026 is set to be defined by true utility – DeFi will return strong with momentum and greater maturity, while the era of stablecoins will become merely a backdrop. Deiss noted that stablecoins have certainly received significant attention this year, even though they are relatively boring infrastructure, they will drive new applications, such as Polymarket using USDC on Polygon as the main coin and chain.
As stablecoins are entering the mainstream and banks are rushing to get involved, the next step is services for users who utilize these underlying assets, said Deiss Gordadze.
However, the most significant growth area is likely at the intersection of AI/blockchain and RWA/blockchain, as these present the biggest opportunities to create influence in the real world and revenue for institutions.
