Crypto Venture Capital Shifts Focus Amid Market Challenges

On February 9, Bloomberg reported that the sharp decline in cryptocurrency prices and the wave of market consolidation have highlighted issues within the crypto industry. According to BlockBeats, the sector, which once thrived during speculative booms, is struggling to build sustainable businesses that generate real revenue. Crypto venture capital is now being pushed towards more traditional startup logic, focusing on product-market fit, profitability, and long-term user retention. Despite the White House's pro-crypto stance and a relaxed regulatory environment, the retail demand that once fueled token-driven venture capital logic has dried up. Native crypto funds are shifting towards better-performing areas in the market, such as stablecoin infrastructure and on-chain prediction markets, while some funds are expanding into adjacent fields like fintech and artificial intelligence. However, as traditional institutions increasingly enter the space, possessing only native crypto expertise is no longer sufficient. "The market is consolidating around what truly works," said Santiago Roel Santos, founder and CEO of crypto private equity firm Inversion. "As a category, Web3 largely lacks investment value at present. People have moved away from NFTs, gaming, and the next DeFi platforms that exist without innovation. Even crypto-native venture capital with funds is heavily pivoting towards fintech, stablecoins, and prediction markets. Everything else is struggling for attention." Native crypto funds like Mechanism Capital and Tangent have begun focusing on deep tech areas, investing in robotics startups such as Apptronik and Figure, marking a shift away from core crypto sectors. Funds are withdrawing from high-risk bets like NFTs, Web3 social platforms, and blockchain games, which defined the speculative narratives of early cycles. Metrics now being prioritized—revenue, user retention, and willingness to pay—were often overlooked in earlier cycles when narrative hype, token liquidity, and market share were used as alternative measures of project appeal. Catrina Wang, a general partner at Portal Ventures, noted that this has led some native crypto venture capitalists to expand into fintech or artificial intelligence. "I wouldn't be surprised to see more funds quietly closing or downsizing," said Tom Schmidt, a general partner at venture fund Dragonfly. "They also face fierce competition from traditional venture capital in the Web 2.5 space for the hottest deals."