Venture capital is very important for startups in Web3 and crypto. Entrepreneurs need to raise money for their projects to hire talented people, pay operational costs, and do marketing to grow their business. Venture capitalists are eager to participate here, as they can receive a share of the profits in the long term – if profits materialize. Most startups fail, and it often revolves around the few successful unicorns that provide profits to the venture capital funds.
The crypto market is unique, as cryptocurrencies also play a role because many startups launch tokens. However, the market for digital assets is currently not doing well. Since October, when the price of 1 BTC reached a record of $126,000, the orange asset is 25% in the red.
Crypto prices are impacting the VC market. It's also different for startups to raise money. What's the current situation?
“Market cycles can influence investment sentiment and slow down or accelerate the deal-making process,” noted Stefan Deiss, CEO of Hashgraph Group, which focuses on VC within the Hedera ecosystem.
Lowered expectations for venture capital
The first thing that usually happens when crypto enters a down cycle is that startup valuations drop.
That might not seem directly related, but "hot rounds"—popular investment rounds—for trendy startups are declining, and venture capitalists are no longer willing to pay exorbitant valuations, says Artem Gordadze, angel investor at the NEAR Foundation and advisor to the Techstars startup accelerator.
"When Bitcoin is trading at high levels, say, near the $100,000 level, startup valuations are also high," says Gordadze. "This creates a difficult problem: VCs have to justify the entry value by assuming a future price that must be achieved within the investment's lifespan to generate sufficient returns."
The theory that Bitcoin always goes up is flawed, according to venture capitalists. Because VC investments often span long periods, they've seen many different cycles, especially with Bitcoin.
Moreover, many VCs often refer to November and December as "depreciation months." This means they close fewer deals in the fourth quarter and around the holidays, preferring to start investing again in the new year.
The pragmatic perspective
Looking at the bigger picture, specifically for the crypto sector, money is being spent, but the number of deals is lower.
A prime example: prediction marketplace Polymarket raised $1 billion, while Kraken raised $800 million in funding this quarter.
In the third quarter, the total amount raised was $4.59 billion, but half of that came from just seven deals, according to Alex Thorne, head of research at Galaxy.
"In a market downturn, investors pay less attention to price action and more to resilience, execution, and the product itself as important signals," says Deiss of Hashgraph Group. "Dips cause investors to focus more on fundamentals and less on short-term momentum."
That short-term momentum often turns out to be mostly hype. Many large VC projects with a token unlock haven't performed well this year. For example, PUMP (down more than 50% by 2025) and Berachain (down 91% since its launch in February).
"High volatility and uncertain early valuations are driving a strong shift in capital investment. Strategies with shorter-term liquidity and better price control are now preferred," Gordadze adds.
The lock-up and liquidity
One of the most striking aspects of the crypto market is the token generation event, or TGE. Coinbase, the successor to the ICOs of the past, now facilitates TGEs after acquiring the investment platform Echo for $375 million. Monad was the first project to launch there, raising $296 million. More projects are likely to follow.
However, once a token is launched, there are some metrics unique to crypto that venture capitalists should be aware of.
One of these metrics is the lockup. With a TGE, not all tokens are available on the market yet; there's a period during which these tokens are held. This is intended to better motivate network participants—from team members to community airdrops and the foundation.
There's also the fully diluted value, or FDV – this is the total number of tokens times the price. It's essentially a market cap for all tokens, even those not yet unlocked.
And when markets fluctuate significantly, it's very difficult for VCs to predict a potential exit point. That can be a tricky issue. Recently, Arthur Hayes of Maelstrom Capital went off on a tangent about lockups, particularly regarding Monad. As a trader, Hayes clearly doesn't appreciate the illiquidity of these tokens.
"Given the average lock-up period for a token or share is 12 to 48 months, VCs need to predict market conditions when these lock-ups expire," said Techstars mentor Gordadze. "The entry price must be strategically chosen for a profitable exit, so long-term market forecasts are very important when closing a deal."
The Future of Crypto VC Investing in 2026 and Beyond
Speaking of market expectations, VCs love to talk about the future. For crypto, it seems like if positive regulations from the US arrive in 2025, next year could be much better. Is this all hope for investors?
Perhaps. But rose-colored (or green-colored) glasses are practically standard practice for VCs. Optimism always wins in the end.
"2026 looks set to be a year of true utility – DeFi will make a major comeback with greater strength and maturity, while stablecoins will fade into the background," Deiss noted. Stablecoins were certainly important this year, but they are a boring infrastructure that, for example, will enable the next Polymarket, where USDC on Polygon will be used as the main coin and chain.
“Now that stablecoins are finally going mainstream and banks are rushing to get on board, the next step is user services powered by these assets behind the scenes,” Gordadze said.
The biggest growth opportunities likely lie at the intersection of AI/Blockchain and RWA/Blockchain, as these areas offer the greatest potential for real-world impact and revenue generation for institutions.
