Why are crypto VCs generally not making money in this cycle?

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The last cycle was truly the golden age of kripto VC. a16z and Paradigm sat on the pyramid and called the shots, Multicoin Capital became famous with Solana and others. During the peak period from 2021 to 2022, it is no exaggeration to say that every two or three days, a project in the DeFi/NFT/gaming field received VC financing, and the cry of Web3 revolution filled social networks. The Block Pro financing data shows that VC invested $29 billion in startups and projects in 2021, and climbed to $33.3 billion in 2022. Many VCs have made a fortune in public chains, DeFi, and NFT. From the seed round to the listing, they even received nearly dozens or even hundreds of times of jaw-dropping returns.

But times have changed, and now everything has changed. VCs invested about $13.7 billion in cryptocurrency and blockchain startups in 2024, up 28% from $10.7 billion in 2023. However, funds are still far below the peak of the previous cycle.

In this cycle, the return performance of crypto VC is disappointing. Many projects are overvalued, token prices have collapsed in the secondary market, VCs have been criticized by the community and retail investors, and VCs exit channels have been blocked. Bitcoin has risen from $15,000 at the low point of the cycle to a high of nearly $110,000, an increase of nearly 734%. From 2022 to 2025, its annualized rate of return is about 94.28%. How many funds in the market have outperformed BTC? Recently, Du Jun said that ABCDE has stopped investing in new projects and second-phase fundraising, and is rethinking how to participate in the development of the industry.

So what are the reasons why VCs are in trouble or even losing money today?

Unlocking mechanism is still not perfect

To some extent, unlocking deeply binds the interests of VC and project parties together, and they share weal and woe. However, the crypto market is very particular about timing. Crypto VCs may have a lower cost of entry in the seed round and A round, but many project tokens are often in a bear market during the actual VC unlocking period. The exit of crypto VCs mainly depends on the secondary market transactions after the listing of tokens, but the market is highly volatile and liquidity is insufficient. Many projects were sold off after airdrops or unlocking, and the token prices plummeted, and the VCs book profits were wiped out.

Jack Yi, founder of LD CAPITAL, said, “Investors generally face a strict lock-up period of ‘1+3’, while exchanges, project owners, market makers and KOLs are not subject to this restriction. In a high-speed iteration environment where the cryptocurrency industry may experience 10 narrative changes in 4 years, this unequal mechanism puts investors at a clear disadvantage.”

There are still only a few popular projects that can succeed

Crypto projects have become popular projects, and the probability of TGE listing on major exchanges at the right time is very low. The main narrative of the last cycle was recognized by both inside and outside the industry, and the sustainability of the track was also quite long. However, in this cycle, various popular competitions and projects often have no sustainability.

From last year to now, tracks such as inscription, re-staking, decentralized scientific research, Ton mini-games, social networking, L2, and Bitcoin ecology have often fallen into silence after a short period of popularity. Even if these projects are listed on major exchanges when their popularity is at its peak, the project needs to achieve a high multiple of returns to cover the overall investment and time costs. However, based on the current market value of the online projects, this goal is difficult to achieve when they are unlocked.

In addition, many unpopular projects were not listed on major exchanges, and even on second-tier exchanges. Many project parties encountered major problems during the airdrop stage or community public relations, resulting in no enthusiasm or buying even during the TGE. The project was quickly marginalized, and the token price was even more predictable.

The funds and enthusiasm of the crypto market have been rotating between Bitcoin, MEME and AI concept coins for quite a long time, which undoubtedly made the VCs return performance even worse.

Some VCs are marginalized

Except for a few top VCs, some VCs do not have much say and cannot invest in truly hot projects, or even if they can, their valuations have become quite high, the returns they can get have become lower, and the amount they get is pitifully small.

The market popularity and returns of projects that are not popular are often not high, and even if they receive a large amount, it is difficult to get a big return. Good project, low valuation, large amount has become an impossible triangle problem.

The deeper problem is that the role of VC is being marginalized. Traditional VCs add value to projects through strategic guidance, resource integration and brand endorsement, but in the crypto market, these added values are becoming ineffective. Project owners have found that they can attract retail funds more quickly through social media marketing by KOLs or cooperation with exchanges. Not only has the influence of VC endorsements declined, but they are sometimes even seen by the community as a signal of cutting leeks. Many VCs only provide funds and lack in-depth empowerment of projects, and the failure rate of their investment portfolios remains high.

In addition, some project owners raise funds directly from retail investors through public and private equity platforms (such as Echo and CoinList), bypassing VCs and weakening VCs bargaining power and exit opportunities.

Where to go

VC must return to fundamentals. The winners in the future will be those projects with practical application scenarios, product-market fit, and sustainable revenue models. Stablecoins, RWA tokenization, and data infrastructure are tracks worth exploring. VCs need to strengthen due diligence on project fundamentals and abandon blind pursuit of hot spots. Secondly, VCs need to transform from mere fund providers to strategic partners of projects. Providing technical support, market resources, and compliance guidance can truly increase the success rate of projects.

The current round of losses of crypto VCs is the result of the macroeconomic winter, industry chaos and their own strategic mistakes. Valuation bubbles, exit difficulties, marginalized roles… These problems are like a mirror, reflecting the loss of VCs in the frenzy market. However, the market in 2025 is brewing new opportunities. The integration trend, regulatory clarification and the entry of traditional finance have provided VCs with a stage to reshape themselves. From speculators to value creators, crypto VCs need to rekesinliklene their roles with a more professional and long-term perspective.

This article is sourced from the internet: Why are crypto VCs generally not making money in this cycle?

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