On February 9th, Bloomberg published an article stating that the plunge in cryptocurrency prices and the surge in market mergers revealed problems within the crypto industry. While it flourished during a speculative boom, it struggled to build sustainable, revenue-generating businesses. Now, crypto venture capital is being pushed towards more traditional startup logic: product-market fit, profitability, and long-term user retention.
Despite the White House's pro-crypto stance and a lenient regulatory environment, retail demand—once the flywheel of token-driven venture capital—has dried up. Native crypto funds are shifting to better-performing areas in the market, including stablecoin infrastructure and on-chain prediction markets, while some are also expanding into adjacent fields such as fintech and artificial intelligence. However, as traditional institutions continue to enter the fray, native crypto expertise alone is far from sufficient.
“The market is consolidating around something that’s actually effective,” said Santiago Roel Santos, founder and CEO of cryptocurrency private equity firm Inversion. “As a category, Web3 is currently largely uninvestable. People have shunned NFTs, gaming, and those uninnovative, next-DeFi platforms that exist only to exist. Even well-funded crypto-native VCs are heavily shifting toward fintech, stablecoins, and prediction markets. Everything else is struggling to gain attention.”
Native crypto funds like Mechanism Capital and Tangent have begun to shift their focus to deep tech, including investing in robotics startups like Apptronik and Figure, marking a shift in investment focus away from the core crypto space.
Funds are withdrawing from high-stakes bets on NFTs, Web3 social platforms, and blockchain games—speculative narratives that once defined the early stages of a project's success. Metrics now underscored—revenue, user retention, and willingness to pay—were often overlooked in the early stages, when narrative buzz, token liquidity, and market share became substitutes for measuring a project's appeal.
Catrina Wang, a general partner at Portal Ventures, said this has led some native crypto VCs to start expanding into fintech or artificial intelligence.
“I wouldn’t be surprised if we see more funds quietly closing or downsizing,” said Tom Schmidt, general partner at venture fund Dragonfly. “They also face fierce competition from traditional VCs for the hottest deals in the Web 2.5 space.”
