Galaxy Research's latest venture capital report shows that in the second quarter of 2025, cryptocurrency and blockchain startups raised a total of $1.97 billion across 378 deals, a 59% decrease in funding and a 15% decrease in deal count compared to the previous quarter. This represents the second-lowest quarterly total since the fourth quarter of 2020. Independent researcher Haotian noted, "Four years have passed, and VCs haven't found a sustainable investment model. Top VCs secure the best terms, lowest prices, and earlier exits, while most small and medium-sized VCs rely on follow-on investments to reap the benefits, being treated as "buyers" by large institutions. Most VCs are simply "large leeks," essentially gambling on the odds by diversifying their portfolios. The market is searching for a possibility where VCs are no longer needed." What do industry insiders think of the demise of crypto VC? Is the cryptocurrency VC industry truly on the verge of extinction?
1. Crypto VCs Suffer a Disastrous Setback
A joint study by Chainplay and Strorible shows that of the 1,181 crypto projects that received venture capital between January 1, 2023, and December 31, 2024, nearly 45% have ceased operations, and 77% have generated less than $1,000 in monthly revenue.
Among venture capital firms, Polychain Capital has the highest investment failure rate, with 44% of its portfolio projects terminated and 76% generating no meaningful revenue. Yzi Labs (formerly Binance Labs) has a 72% failure rate for projects it backs. Top venture capital firms such as Circle, Delphi Ventures, Consensys, and Andreessen Horowitz have also seen a large number of backed projects cease operations, with many experiencing over two-thirds of project failures.
Among angel investors, former Coinbase CTO Balaji Srinivasan has the highest proportion of "zombie projects", reaching 57%; Arthur Hayes is 34%, Santiago Santos is 15%, and Sandeep Nailwal and Stani Kulechov have supported projects with 10% of them shut down.
Data shows that the scale of fundraising is significantly correlated with the success rate. The failure rate of projects with financing of more than 50 million US dollars is significantly lower, while among projects with financing of less than 5 million US dollars, 33% have failed and 20% have ceased operations.
2. VC is more rational
Waterdrip Capital Founding Partner and CEO Jademont pointed out: "Why is VC almost extinct? You can look at the announcements of the top CEXs in the past two years. They will only tell you that XXX letters are going to be listed, and everyone should go and gamble, without wasting a single word to explain why the project is being launched or what it is about. Many retail investors have been gambling with the dog dealers for months without knowing what the underlying assets they are trading are, let alone using the products. CEXs have become seriously casino-like, and even casinos occasionally cheat. It is said that the top criteria for CEXs to be listed are community popularity and whether there is sufficient market making funds. If the conditions for listing are like this, then the existence of VCs is really meaningless. Because most VCs are not able to help project parties build a community, nor are they willing to help project parties manage the market and gamble with retail investors. So rather than saying that VCs are about to disappear, it is better to say that VCs have made other choices. But first, they are unwilling to promote. Because promotion has no practical significance other than PR. Even if the project party messes up, they will be scolded by the community. You must know that even if the team is responsible, the probability of failure of an early project is already very high. It is better to wait until the project becomes bigger before telling the market that this project is my investment. Second, many projects don't even have plans to launch a token or aren't targeting retail investors, so there's no need for promotion. Just wait until the bell rings to celebrate. Looking at the calendar next year, at least three to five early-stage investment projects will be listed on Nasdaq. Token issuance is no longer the only exit path for startups. Sylvia To, director of Bullish Capital Management, stated that cryptocurrency venture capitalists are reducing their risk appetite, avoiding the hot topics of the month, and taking a more critical approach to investments. "You really have to start thinking: The industry is building this infrastructure, but who is using it? Is there enough transaction volume? Is the volume generated through these blockchains sufficient to justify all the capital raised?" In 2025, many projects were raising funds at inflated and often unjustified valuations, relying heavily on future cash flow forecasts. Third, the theory of shifting capital flows: The long-standing correlation between Bitcoin's price and VC investment has broken down and is "difficult to recover." This disconnect stems from waning interest among venture capitalists and the market's increasing emphasis on Bitcoin accumulation over other investments. Cryptocurrency-focused venture capital is struggling to recover to its 2021 highs. Source: Galaxy Research. Data from Insights4VC shows a shift in capital flows. Digital asset finance companies (vehicles that primarily raise funds for cryptocurrency purchases) have attracted the majority of investment this year, attracting $15 billion to accumulate Bitcoin, Ethereum, and other tokens as of August 21st. The divergence between large investors hoarding cryptocurrencies and startups seeking venture capital reflects a shift in investor sentiment. Bitwise CEO Hunter Horsley stated that a growing number of supporters are demanding a clearer path to profitability and a sustainable business model. The pursuit of returns is driving Wall Street's investment in Ethereum. "If you take $1 billion in ETH, invest it in a company, and stake it, suddenly you're profitable. Investors have become accustomed to profitable companies." 1confirmation founder Nick Tomaino once wrote on the X platform that Ethereum's rise spells the "death of crypto VC," and that 99% of crypto VCs will soon disappear. The only path to long-term success lies in being in the right place at the right time, securing institutional capital, and maintaining user alignment without vision or creativity. Eva Oberholzer, Chief Investment Officer of the venture capital firm Ajna Capital, stated: "VCs have become more selective in the crypto projects they invest in, indicating a shift from the previous cycle due to market maturity." “We’ve reached a different phase in crypto, similar to every cycle we’ve seen with other technologies in the past.”
Market maturity has slowed the pace of pre-seed investing as VCs turn their attention to mature projects with clear business models. “It’s more about predictable revenue models, institutional dependency, and irreversible adoption. So, what we’re seeing now is that crypto is less about being driven by any meme coin craze or other trends and more about institutional adoption. Right now, VCs are focusing on stablecoin projects and investing in other forms of payment infrastructure that can generate fees.”
The shift in VC activity reflects a broader trend in institutional cryptocurrency investment and a focus on revenue-generating digital asset businesses, rather than the price speculation that drove investment in previous cryptocurrency cycles like the 2021 bull run. 5. The Future of VCs: Trader Tong Junjun noted, "During the last bull market, VCs were dream factories, telling stories, raising valuations, and selling to secondary investors. This time, they've found themselves being exploited by market makers and traffic drivers. The so-called collapse of investment logic is actually a loss of voice. VCs are no longer investing in projects. Some have become market makers, others incubators, and many are imitating the investment banking model, relying on liquidity and commissions." Quantitative trader Ares noted that the responsibilities of VCs in traditional industries are simply to provide funding and resource support, which is particularly effective in environments where financing is difficult and listing requirements are stringent. However, in the cryptocurrency world, the environment appears to be very different, with financing challenges and exchange listing requirements significantly different. Therefore, VCs must adapt accordingly to adapt to the crypto investment and financing environment. I believe that in the future, VCs in the crypto space will be divided into two categories: VCs from top exchanges—investors essentially have a leg up on exchanges; and VCs with significant market share, such as a16z, who understand the crypto landscape, excel at marketing, and offer unwavering, one-stop service. According to a Galaxy Research report, in Q2 2025, the mining sector attracted a significant amount of funding (over $300 million)—the first time in recent years that it has held the largest share. During the same period, sectors such as exchanges, lending, Web3, NFTs, gaming, DAOs, the metaverse, and infrastructure continued to account for a significant number of investment projects. VC activity overall remains robust and healthy, with areas like AI, blockchain infrastructure, and trading continuing to attract deals and funding, and pre-seed financing activity also remaining stable. Conclusion: The crypto VC market that drove the previous bull market has cooled in this cycle. Regardless of which of these statements market participants agree on, whether VCs are becoming more rational, capital flows are shifting, or the crypto market is maturing, the era of VCs making easy money may be over. What VCs should do is not to clarify whether they are still alive, but to prove with concrete actions that they are living a better life.
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