The cryptocurrency market has always been a battleground of narratives—between retail optimism and institutional caution, between hype cycles and real adoption. As Bitcoin and Ethereum prices hover near or above previous all-time highs, a puzzling trend emerges: fundraising in the space has plummeted to levels not seen since 2018–2019. Despite bullish price action, venture capital investment in crypto startups, especially in DeFi, has sharply declined.
Why are crypto VCs pulling back when prices are high? Are they seeing risks the broader market is ignoring? To uncover the truth behind the funding freeze, insights were gathered from Sachi Kamiya of Polygon Ventures, Etiënne from TRGC, an anonymous angel investor (referred to as "Anon"), and Jaimin, founder of DeFi security startup Caddi.
These experts offer a rare behind-the-scenes look at how crypto investors are navigating this complex cycle—and what it means for retail participants.
The Funding Drought in a Bullish Market
At first glance, the correlation between Bitcoin’s price and crypto fundraising appears strong: as BTC rises, so does capital inflow. But recent data tells a different story. While BTC has recovered from its 2022 lows and ETH remains elevated, total funding has dropped dramatically.
According to CoinCarp, total crypto fundraising over the past year reached $18.6 billion across 1,053 deals. However, this figure includes major Web2 rounds—like Stripe’s $6.5 billion raise—that skew the data. When focusing solely on DeFi, the picture darkens: only 175 DeFi funding rounds raised $779 million**, averaging **$4.45 million per round—a 55% drop from 2022’s $10 million average.
DeFi now ranks second-to-last in fundraising performance, just above NFTs. Over the last 365 days, DeFi protocols raised only $1.14 billion**, compared to **$2 billion for CeFi startups. Exchanges dominate DeFi funding, capturing 38% of Q3 2023 capital.
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Why Are VCs Holding Back?
Contrary to popular belief, many crypto VCs aren’t leading the charge—they’re reacting. Market sentiment remains bearish among institutional players.
Sachi Kamiya from Polygon Ventures confirms: “The overall mood in crypto VC is pessimistic. Fewer early-stage projects are securing funding due to negative sentiment.” Anon echoes this: “I’m seeing maybe 10% of the deal flow I saw during the bull market.”
Yet Etiënne from TRGC notes a crucial difference from past downturns: “Unlike 2019, there’s real dry powder waiting on the sidelines. In 2019? Zero.”
This suggests a strategic pause—not a full retreat. Investors are being selective, avoiding inflated valuations and focusing on fundamentals.
Sachi emphasizes: “Now is the time to conduct deep due diligence. VCs are prioritizing user metrics and real adoption over hype.”
But for founders like Jaimin, this creates a catch-22: “Investors want exponential growth—TVL, users, revenue. But sustainable growth is nearly impossible with low user inflow, low volatility, and poor market sentiment.”
The Role of Crypto Venture Capital
Despite widespread skepticism—fueled by accusations of insider advantages and retail exploitation—VCs still play a vital role.
Critics argue that fair launches (like Yearn Finance in 2020) prove projects can succeed without institutional backing. Algod, a prominent crypto commentator, claims fair-launch projects avoid turning retail into exit liquidity for VCs.
Even traditional investors like Jason Calacanis warn that many token offerings resemble securities sold to unsuspecting retail buyers—a practice he believes could lead to legal consequences.
Yet Anon points out: “Fair launches aren’t truly fair. Teams and insiders often have early access and can manipulate liquidity.”
Jaimin agrees: “True fairness is rare. There are too many ways to game the system.”
Sachi adds nuance: “Fair launches can work—for experienced founders with existing networks. For first-timers without resources? It’s an uphill battle, especially if the project isn’t a simple fork.”
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What Can Retail Investors Learn?
If VCs aren’t always ahead of the curve, what should individual investors do?
Etiënne offers blunt advice: “Stop listening to most VCs. I mute 95% of them. Instead, study timeless thinkers—Howard Marks, Nassim Taleb, Buffett, Druckenmiller.”
He makes one exception: VCs with decades of proven track records—not those who got lucky on a single token.
Anon stresses diversification: “Even VCs make this mistake and suffer heavy losses.”
Sachi urges critical thinking: “Ask the right questions. Are user metrics real? Is the team credible? Remember: public announcements often hide complex back-end deals like token swaps or grants. Look beyond the surface.”
Jaimin highlights continuous learning: “DeFi evolves fast. Build skills, read constantly. Deep knowledge lets you add value—and spot opportunities early.”
Key Takeaways for the Next Cycle
- Funding follows sentiment, not leadership. Many VCs react to markets rather than anticipate them.
- Bear markets create opportunity—but only for prepared investors.
- Real adoption matters more than hype. Projects with strong user metrics will outperform.
- Fair launches have limits—especially for new builders.
- VCs aren’t infallible. Their behavior is influenced by fear, FOMO, and liquidity constraints.
Sachi sums it up: “Investing now makes sense—some of these projects will lead the next bull cycle.”
Frequently Asked Questions (FAQ)
Q: Are crypto VCs still investing during bear markets?
A: Yes, but selectively. Many focus on high-potential teams with strong fundamentals rather than chasing trends.
Q: Why is DeFi fundraising declining despite high BTC and ETH prices?
A: Institutional investors prioritize real usage over price momentum. Without strong user growth or innovation, funding dries up.
Q: Can retail investors compete with VCs?
A: Absolutely—by doing independent research, focusing on on-chain metrics, and avoiding hype-driven decisions.
Q: Is a fair launch truly fair?
A: Rarely. Teams often have early access or hidden advantages. True fairness requires transparent mechanics and community governance.
Q: Should I trust VC-backed projects?
A: Not blindly. Use VC involvement as one signal among many—verify team credibility, tokenomics, and product-market fit.
Q: What’s the best strategy for retail investors in this climate?
A: Focus on education, diversify holdings, and invest in projects solving real problems—not just those with big names attached.
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Final Thoughts
The disconnect between asset prices and fundraising reveals a maturing market. Crypto is no longer driven solely by speculation—it’s increasingly about sustainable value creation.
While VCs may not always be ahead of the curve, their current caution signals prudence, not pessimism. For retail investors, the lesson is clear: do your own research, think long-term, and build expertise.
The next wave of innovation won’t come from hype—it’ll come from builders and investors who stayed disciplined through the downturn.
And when the next cycle begins, those who prepared will be ready.