Bear market venture capital cooling: Changes in crypto VC investment logic, where is the turning point in 2026?

As the cryptocurrency market enters a downtrend cycle, the movements of venture capital (VC) become an industry barometer. Since Bitcoin hit a record high of $126,000 in October 2025, its price has retraced about 25%, with ripple effects quickly transmitting to the primary market. This article delves into three major trends currently shaping the crypto VC landscape: downward revision of startup valuations, investment focus shifting toward leading projects, and liquidity challenges following token generation events (TGE). Industry experts point out that the market downturn is prompting investors to shift from chasing short-term momentum to focusing on project fundamentals and long-term utility, while the integration of artificial intelligence with blockchain, and real-world assets (RWA) with blockchain, are seen as the most promising growth tracks for 2026.

Market Cold Snap: Paradigm Shift in Crypto VC Investment Logic

As Bitcoin’s price slips from its dizzying highs, the overall crypto ecosystem’s funding thermometer also cools. Venture capital, as the lifeline for early-stage Web3 startups, is undergoing profound adjustments in its investment pace and valuation models. Stefan Deiss, CEO of Hedera ecosystem VC firm Hashgraph Group, notes that market cycles profoundly influence investor sentiment, potentially delaying or accelerating deal closures. This impact is especially evident now, with investors becoming more cautious and decision cycles lengthening.

The most direct change brought by the downtrend is a general retracement in startup valuations. This contrasts sharply with the “hot funding rounds” scene during bull markets. Artem Gordadze, angel investor at NEAR Foundation and advisor to startup accelerator Techstars, explains that when Bitcoin trades at high levels—such as the widely anticipated $100,000—early-stage company valuations also soar. But this creates a challenging dynamic: VCs must justify their entry valuations based on future prices achievable within their investment horizon, aiming for acceptable returns. Now, with the market cooling, the frenzy of paying premiums for “stories” and “visions” has subsided.

Additionally, traditional VC calendars are at play. Many VC firms regard November and December as “write-off months,” meaning they do not expect to complete many substantive investments during Q4 and the holiday season, preferring to restart their deployment after the new year. This seasonal factor, combined with market cycles, makes the end-of-year primary market particularly quiet. However, this isn’t entirely a bad thing; it provides a window for reflection and strategic adjustment.

Valuation Reshaping: From “Sky City” to “Grounded” Pricing Logic

Valuation adjustments are not just numerical shifts but a return of the entire investment philosophy from optimistic narratives to pragmatic realism. Gordadze further elaborates that high volatility and uncertain early valuations are driving significant changes in capital allocation strategies, favoring those with shorter liquidity cycles and better pricing control. This means projects that can quickly demonstrate product-market fit, with clear revenue streams, will be more favored.

This shift is also reflected in internal decision-making processes within investment institutions. Deiss from Hashgraph Group believes that market downturns sharpen the focus, as investors no longer see price trends as signals but instead prioritize execution capability and product resilience. Bear markets force investors to pay more attention to fundamentals rather than short-term momentum. Projects that previously relied on tokenomics design and community hype to achieve high valuations during bull markets now need to produce tangible code progress, user growth, and revenue data.

Project performance data reflect valuation difficulties

Recent performance of tokens from some large VC-backed projects post-TGE exemplifies this valuation shift. For example:

PUMP: Since 2025, its price has fallen over 50%.

Berachain: Since its launch in February 2025, its price has dropped by 91%.

These stark cases serve as a stark reminder to investors that high initial valuations lacking sustained fundamentals will face significant selling pressure when unlocking waves occur and market sentiment shifts. This also prompts VCs to evaluate projects’ long-term viability and tokenomics sustainability more cautiously during investments.

Volume Shrinks, Prices Stabilize: Capital Concentrates on Top Projects with Strong Fundamentals

Despite a generally cautious market atmosphere, capital has not entirely exited but shows signs of “volume contraction and price stabilization,” concentrating on top-tier quality projects. Alex Thorne, head of research at Galaxy, reports that in Q3 2025, total crypto investments reached $4.59 billion, but half of that was concentrated in just 7 deals. This reveals another truth: capital is fleeing risk and chasing certainty.

Some large funding rounds this quarter confirm this trend. For instance, prediction market Polymarket completed a $1 billion raise, and mainstream CEX Kraken secured $800 million. These projects typically have relatively mature products, clear business models, and strong teams, representing higher safety margins amid uncertainty. For most early-stage startups, the fundraising environment has become more challenging, requiring more effort to prove their unique value.

This differentiation imposes new demands on entrepreneurs. Having only a white paper or a hot concept is no longer enough to impress investors. Deiss emphasizes “execution resilience” as a key factor. This means teams need to demonstrate the ability to iterate products, build communities, and expand partnerships continuously, even with limited resources. Teams capable of surviving bull and bear markets tend to be more mature in governance, financial planning, and risk management. Therefore, the current fundraising environment is essentially a deep stress test of project internal strength.

Unlocking Puzzle: Liquidity Challenges Post-TGE and VC Exit Strategies

A unique aspect of the crypto industry compared to traditional VC is the token generation event (TGE). TGE is not only a fundraising method but also introduces new variables such as lock-up periods and fully diluted valuations, which profoundly impact VC exit strategies. Recently, Arthur Hayes of Maelstrom Capital sharply criticized projects like Monad for their token lock-up arrangements, as a trader, he clearly disfavors the illiquidity issues caused by such tokens.

Lock-up periods are common at TGE, and not all tokens enter circulation immediately; portions held by teams, investors, community airdrops, and foundations are often locked for a period. This design aims to better incentivize network participants and prevent early sell-offs from crushing the market. However, fully diluted valuation, which accounts for all tokens (including unvested), calculates the total value of all tokens. When market volatility is high, VCs find it difficult to predict the market environment at future unlocks, complicating their exit planning.

Techstars mentor Gordadze explains that, given an average vesting/lock-up period of 12 to 48 months for tokens or equity, VCs must simulate potential market conditions at the end of these periods. Entry prices need to be strategically set to ensure profitable exits, making long-term market forecasts critical for deal closure. Therefore, a project’s token unlock schedule has become one of the core factors in VC investment decision-making, directly affecting capital’s time cost and ultimate returns.

Future Outlook: 2026 Focus on “Real Utility” and Cross-Industry Integration Tracks

Despite short-term challenges, inherent optimism among venture investors drives their gaze toward the future. With several positive signals from US regulators in 2025, the market holds higher expectations for 2026. Is this “hopium” from investors or a rational judgment based on trends? industry leaders offer their insights.

Deiss from Hashgraph Group predicts that 2026 will be the year of defining “real utility.” Decentralized finance (DeFi) will make a strong comeback driven by increased momentum and maturity, while stablecoins will shift from a “highlight moment” on stage to foundational infrastructure supporting everything. He cites, for example, prediction markets like Polymarket using USDC on Polygon as their main token and chain—stablecoins will become the “power source” behind many innovative applications. Gordadze agrees and adds that stablecoins are finally mainstream, with banks rushing in; the next phase will see explosive growth in user-facing services driven by these assets behind the scenes.

Regarding the most promising growth areas, experts concur. Deiss points out that the most significant growth may lie at the intersection of artificial intelligence and blockchain, as well as real-world assets and blockchain, because these areas represent the greatest opportunities to generate real-world impact and institutional revenue. The integration of AI and blockchain can address issues like data rights, model transparency, and decentralized computing; while the RWA track introduces traditional assets (such as government bonds, real estate, and loans) onto the chain, injecting enormous programmable value into DeFi and attracting participation from traditional financial institutions. Both directions transcend pure financial speculation, pointing toward broader applications of blockchain technology, and are viewed as the core narratives for the next cycle.