Encryption Venture Capital 2025: New Trends Behind Financing Difficulties

Author: Mason Nystrom

Compiled by: Deep Tide TechFlow

Provide some insights to founders about the current state of cryptocurrency financing, as well as my personal predictions for the future of cryptocurrency VC.

To put it bluntly: the financing environment is challenging due to upstream DPI (note: a market capitalization weighted index used to track the performance of decentralized finance ( DeFi ) assets in the cryptocurrency market) and the funding challenges for LPs. Across the entire VC space, the amount of funds returned to LPs by the funds during the same time period has decreased compared to the past.

This, in turn, leads to a reduction in net capital obtained by existing and new venture capitalists, ultimately making the financing environment more difficult for founders.

What does this mean for crypto businesses?

Trading will slow down in 2025, but will match the pace of capital deployment in 2024.

• The slowdown in trading volume may be related to many VCs nearing the end of their funds, resulting in less capital available for deployment.

• Some large transactions are still completed by major funds, so the pace of capital deployment remains on par with the previous two years.

Over the past two years, mergers and acquisitions in the cryptocurrency sector have continued to improve, indicating a positive development in liquidity and exit opportunities. Recent large-scale merger and acquisition transactions, including NinjaTrader, Privy, Bridge, Deribit, and HiddenRoad, signal a good omen for the integration and underwriting of more crypto equity venture capital.

Over the past year, the trading volume has been relatively stable, with some larger transactions in the later stages expected to be completed (or announced) in the fourth quarter of 2024 and the first quarter of 2025.

This is mainly because more transactions belong to the early Pre-seed, seed round, and accelerator stages, where funding is always relatively abundant.

Accelerators and Launchpads lead the trading volume at various stages.

Since 2024, there has been a surge of accelerators and Launchpad platforms in the market, which may reflect a more challenging capital environment and founders' choice to launch tokens earlier.

The median trading volume in the early stage has rebounded.

The scale of pre-seed financing continues to grow year-on-year, indicating that the market still has ample funds in the early stages. The median financing for seed rounds, Series A, and Series B has approached or rebounded to the levels of 2022.

Predictions for the Future Stages of Cryptocurrency VC

1: Tokens will become the primary investment mechanism

Shift from a dual structure of tokens and equity to a unified structure of single asset appreciation. One asset, one story of value appreciation.

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2: The Integration of Financial Technology and Crypto Venture Capital

Every fintech investor is transforming into a cryptocurrency investor, as they seek to invest in next-generation payment networks, new banking systems, and tokenized platforms, all of which are built on cryptocurrency rails.

The competition among crypto VCs is about to heat up, and many crypto VCs that have yet to invest in the stablecoin/payment sector will find it difficult to compete with seasoned fintech VCs.

3: The Rise of Liquidity Risk Investment

"Liquidity Risk Investment" - Investment opportunities in the liquidity token market.

Liquidity - The liquidity of public assets/tokens means faster liquidity.

Accessibility - In private equity, gaining access is not easy, while liquidity risk investments mean that investors do not always need to win the deal; they can directly purchase assets. Over-the-counter options are also available.

Position Adjustment - Due to the earlier issuance of tokens by the company, this means that smaller funds can still establish meaningful positions, while larger funds can similarly deploy into larger market-cap liquidity assets.

Asset allocation - Many of the best-performing VCs historically have held their risk capital in tokens such as BTC and ETH, which have generated excess returns. Personally, I believe that in bear market cycles, it will become more normal for VCs to call on more funds in advance.

Cryptocurrency will continue to lead the frontier of VC.

The integration of public and private capital markets is the direction for the development of venture capital. As companies delay their IPOs, more traditional VCs are choosing to invest in liquidity markets (holding instruments post-IPO) or the secondary market. Cryptocurrency is at the forefront of venture capital.

Cryptocurrency continues to innovate in the formation of new capital markets. Moreover, as more assets are moved on-chain, more companies will focus on on-chain priority capital formation.

Finally, the returns on cryptocurrencies are often more power-law-like than traditional venture capital (Deep Tide Note: In a power-law distribution, the probability of most events occurring is very small, while the probability of a very few events occurring is very large). Top crypto assets are vying to become the underlying assets of sovereign digital currencies and the new financial economy. This decentralization will be greater, but the super power-law and volatility of cryptocurrencies will continue to drive capital into the cryptocurrency venture capital space, seeking asymmetric returns.