The marriage of Wall Street and crypto will push investments into digital asset startups up to $25 billion this year, VCs say.
PitchBook, the investment research firm, shared that optimism and estimated the industry will raise $18 billion in 2025. That would double the $9.6 billion raised in 2024 — an amount the industry has already surpassed this year, according to DefiLlama.
The bullishness comes at a critical juncture for the industry.
After the Biden administration’s crypto crackdown, the sector has found itself in a state of metamorphosis. Having long been relegated to the outskirts of finance, it’s increasingly accepted by Wall Street as a legitimate industry.
Bullish signals
Buoyed by US President Donald Trump’s pro-crypto administration and industry-friendly legislation, bullish signals are on the rise.
Both Bitcoin and altcoins’ prices have reached record highs, stablecoin issuer Circle’s IPO soared to levels not seen since the dotcom boom of the 1990s, fintechs have bought crypto firms, and banks are exploring the launch of their own stablecoins.
‘Fundamentals matter — there has to be a proper, real business.’ Jonas Kristensen
The crypto funding boom coincides with a new wave of founders.
VanEck Ventures, for instance, has backed teams that include ex-bankers or tech workers at companies like OpenAI who bring blockchain technology into traditional finance and other industries, he said.
They are “starting to tie the tech world and the crypto world together — it’s not its own island anymore,” Lonergan said.
Founders who can demonstrate how to merge those worlds will have an advantage in the funding race, investors said.
Other areas of interest include the cross-pollination of crypto and AI, better user experiences, and innovative crypto-trading platforms.
Key for those firms to get funding, however, is that they can demonstrate the viability of their business. That means investors will look at metrics like revenue, distribution, and active users.
The FTX effect
FTX was a gift in disguise, Kristensen said.
But it came at a cost. Big investors burnt by the scandals withdrew from crypto to focus on areas like AI that promised greater yield and smaller risk. They’re unlikely to return to crypto any time soon, Giampapa said.
The absence of those big deployers of capital is one of the reasons why investors say they don’t expect funding levels to return to the heights of the last cycle, at least not yet.
Another reason is that limited partners, the investors that invest in VC funds, are also more hesitant to back crypto investments this time around. VCs are betting that those backers will eventually return.
“LPs are smart and where good opportunities are popping up, capital will form,” Giampapa said. “We’re still in a bit of a digestion period before that capital does actually form.”
The scandals also incentivised investors to look for founders willing to disclose holdings and deals akin to how startups in other sectors do.
“We know from history that if you set up a system where it can be gamed and you can hurt people, then people will take advantage of it,” Lonergan said. “There are smart, cutting people out there.”
Finally, the scandals armed anti-crypto firebrands like Senator Elizabeth Warren and former Securities and Exchange Commission Chair Gary Gensler with fresh ammunition.
According to the investors we spoke with, founders became more hesitant to launch and market crypto businesses out of fear of drawing the SEC’s ire.
They had reason to be worried. During the Gensler year, the agency fired off a barrage of law enforcement actions against crypto companies such as Ripple, Coinbase, and Kraken.
The regulator ended most of those lawsuits after Trump was elected, which encouraged entrepreneurs to explore crypto opportunities more openly, Lonergan said.
“Those shackles are off,” he said.
You’re reading the latest installment of The Weekly Raise, our column covering fundraising deals across the crypto and DeFi spaces, powered by DefiLlama.
