Crypto venture capital funding is expected to rise in 2025, but it likely won't reach the levels seen in 2021 and 2022, according to JPMorgan analysts. While regulatory clarity in the U.S. and Europe is expected to encourage more investment, other factors are creating new challenges for VCs, the analysts noted.
One major issue is competition from large financial institutions like BlackRock and Franklin Templeton, according to a report published Wednesday by a team of JPMorgan analysts led by Managing Director Nikolaos Panigirtzoglou. These institutions are expanding their presence in the crypto space, particularly in areas like stablecoins, tokenization and decentralized finance, the analyst said, adding that this shift potentially reduces the market share available for VCs. For instance, BlackRock recently extended its tokenized money market fund to multiple blockchains, which the analysts said could limit the prospects for new projects in the stablecoin market.
Another factor that could impact the growth of crypto VC funding this year is the rise of community-driven fundraising platforms like Echo, according to the report. Crypto projects increasingly avoid large token sales to VCs due to concerns over control and regulatory risks. The analysts warned that this shift could make it harder for traditional VCs to secure deals with promising startups.
The JPMorgan team also cited high interest rates as another challenge since these rates make venture capital funding less attractive than other investment options, limiting the flow of capital into the sector. Additionally, they highlighted the growing popularity of crypto ETFs is drawing investor attention away from early-stage startups. ETFs offer a simple way for investors to gain exposure to crypto without directly funding projects, reducing the pool of capital available to VCs.
Looking ahead, crypto VCs are expected to prioritize projects with tangible user adoption and focus on long-term growth rather than traditional short-term metrics like total value locked and tokenomics, according to the analysis.
"This trend highlights an increasing focus on the foundational elements of blockchain technology, prioritizing projects that enhance scalability, security and efficiency," the analysts wrote.
The JPMorgan analysts' views align with recent reporting from The Block, which interviewed crypto VCs who expressed cautious optimism for 2025. While most agreed that funding levels won't return to the highs of 2021-2022, they emphasized that startups with strong product-market fit and clear user adoption are best positioned to attract capital in the year ahead.
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Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.
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