Crypto VC fundraising plummets 90% since 2022 amid trust erosion and market shifts

Raising a venture capital fund focused on cryptocurrency has become increasingly difficult, even in the current bull market. Several venture capital firms and industry experts have pointed to a shift in investor behavior following the 2022 collapses of Terra (LUNA) and FTX, which significantly eroded trust among limited partners (LPs). As a result, the fundraising landscape for crypto VC has become more selective and demanding [1].

The effects of the 2022 market turmoil are still being felt. In 2022, crypto VC fundraising reached over $86 billion across 329 funds, but that figure dropped to $11.2 billion in 2023 and further to $7.95 billion in 2024. As of early 2025, just $3.7 billion had been raised across 28 funds [1]. This steep decline reflects not just a loss of capital but also a broader shift in LP priorities. Investors are now more cautious, focusing on funds with a proven track record and real distributions to paid-in capital (DPI), rather than relying on unrealized gains [1].

The market is also more competitive. Only the top-performing firms are securing new commitments, with 20 firms capturing 60% of all LP capital in 2024. Smaller and mid-sized funds, particularly those without a clear edge or established performance, are struggling to attract interest [1]. This has led to what some call a “flight to quality,” where capital is concentrating among the strongest players in the space [1].

Family offices and crypto-native funds continue to support crypto VC, but traditional institutional investors such as pensions, endowments, and corporate venture arms have largely pulled back. This has left a smaller, more discerning pool of LPs that demand higher returns and more transparency [1]. Rising interest rates since early 2022 have also pushed allocators toward safer, more liquid assets, further diverting capital away from venture strategies [1].

The challenges extend beyond investor sentiment. The lack of a strong “altcoin bid” since the 2021–2022 cycle has limited the upside for many crypto VC funds, as most invest in tokens rather than infrastructure or enterprise projects. Meanwhile, the rise of AI as a dominant tech narrative has drawn attention and capital away from crypto-focused strategies [1]. This dual pressure has made it harder for crypto VC to compete for attention and investment, even in a bull market.

Looking ahead, many industry insiders expect a period of consolidation. Smaller, underperforming funds may quietly disappear, while the most capable firms—both at the ultra-early stage and the mega-fund level—will likely dominate. This trend could push crypto VC closer to traditional venture capital models, where a small number of top-tier funds capture most of the capital and deal flow [1].

The timeline for a broader return of LPs remains uncertain. Some predict that interest rates will decline and M&A activity will boost distributions, leading to a return of institutional capital by mid-2026. Others believe that pensions and other large institutional investors will gradually return as regulatory clarity improves and the market matures [1].

Source:

[1] The Funding: Why raising a crypto VC fund is harder now — even in a bull market (https://www.theblock.co/post/368051/the-funding-why-raising-a-crypto-vc-fund-is-harder-now-even-in-a-bull-market)