The Growing Mismatch Between VC Valuations and Public Market Realities in Crypto

The crypto ecosystem in 2025 is marked by a stark divergence between venture capital (VC)-backed startup valuations and public market token performance. While private crypto companies are commanding bull market-level valuations, public tokens-particularly retail-focused ones-remain mired in underperformance. This growing mismatch presents both challenges and opportunities for long-term investors, who must navigate the valuation gap with disciplined, risk-adjusted strategies.

The Valuation Divide: Private Optimism vs. Public Pessimism

In Q3 2025, venture capital-backed crypto startups saw valuations surge to levels not seen since the 2021 bull market, with $4.59 billion invested in the quarter alone. Later-stage deals dominated, capturing 56% of capital, as investors flocked to infrastructure and trading platforms like Revolut and Kraken. Median pre-money valuations for early-stage ventures hit $36 million, while late-stage startups commanded even higher premiums. This optimism is fueled by regulatory clarity, including the U.S. GENIUS and CLARITY Acts, which have created a more structured environment for private crypto innovation.

Conversely, public market crypto tokens have struggled. A staggering 85% of retail tokens trade below their Token Generation Event (TGE) valuations, with the median token down over 70% from its launch price. This underperformance reflects a shift in investor sentiment from speculative retail demand to institutional-grade utility. Public market participants are now prioritizing projects with proven revenue models and tokenomics, while high-FDV projects with low circulating supply have lost favor.

Structural Factors Driving the Gap

The valuation gap is not accidental-it is structural. Venture capital has increasingly focused on later-stage infrastructure and trading platforms, where capital is concentrated in firms with clear product-market fit and institutional backing. Meanwhile, public markets remain fragmented, with retail investors still grappling with the aftermath of speculative cycles and regulatory uncertainty.

Macroeconomic factors also play a role. While VC activity has rebounded, it remains below the frenetic levels of 2021–2022 due to competition from public market vehicles like ETFs and waning interest in sectors like gaming and Web3. Public market crypto equities, however, have benefited from a pro-crypto policy shift post-2024 U.S. elections, including the approval of spot Bitcoin ETFs and the launch of corporate treasury Bitcoin allocations. These developments have reduced the regulatory discount in crypto valuations but have not yet translated to broad-based token recovery.

Risk-Adjusted Entry Strategies for Long-Term Investors

For investors seeking to bridge this gap, the key lies in balancing the strengths of both private and public markets while mitigating their respective risks.

1. Private Market Opportunities: Counter-Cyclical Timing and Infrastructure Focus
   Venture capital funds focused on blockchain innovation have historically outperformed public equity benchmarks. For example, the 2018 vintage of blockchain-focused VC funds achieved a 39% net IRR since inception, underscoring the potential for outsized returns when investments are made during downturns. Long-term investors should prioritize early-stage infrastructure projects-such as decentralized finance (DeFi) protocols, cross-chain solutions, and institutional-grade custody platforms-that align with the growing institutional adoption of crypto. VC investors are increasingly adopting longer vesting schedules and lower entry multiples to align with public market realities and avoid overvaluation risks. This approach ensures that private investments remain resilient even if public market token prices stagnate.

2. Public Market Caution: Utility-Driven Selection and Regulatory Alignment
   Public market investors should focus on tokens and equities with demonstrable utility and revenue. Projects with strong tokenomics, aligned communities, and clear use cases-such as stablecoins, blockchain-based custody services, and institutional trading platforms-are better positioned to withstand volatility. For instance, the growth of stablecoins and their integration into traditional financial services (e.g., JPMorgan's Bitcoin collateralized lending) has created new avenues for institutional capital. Regulatory developments will also shape public market opportunities. The U.S. Executive Order on crypto and proposed market structure bills have reduced macroeconomic uncertainty, but investors must remain vigilant about political risks, such as potential regulatory shifts in 2026.

3. Diversification and Liquidity Management

Given the structural divergence between private and public markets, a diversified portfolio is essential. Long-term investors should allocate capital to both asset classes while maintaining liquidity buffers to capitalize on entry points during market dislocations. For example, the backlog of unmonetized VC investments from the early 2010s highlights the importance of patience and liquidity planning. Meanwhile, public market investors can benefit from ETF inflows and corporate treasury participation, which provide stability in an otherwise volatile sector.

Conclusion: Bridging the Gap Through Strategic Patience

The growing mismatch between VC valuations and public market realities in crypto is not a flaw but a feature of the industry's maturation. Private markets are building the infrastructure for a more institutionalized future, while public markets are still sorting through the noise of speculative cycles. For long-term investors, the path forward lies in disciplined, risk-adjusted strategies that leverage the strengths of both ecosystems. By prioritizing counter-cyclical timing, utility-driven selection, and regulatory alignment, investors can position themselves to benefit from the inevitable convergence of these two worlds.