From "token fantasy" to "income reality," the logic of crypto investment is undergoing a brutal shift.

On February 9th, Bloomberg published an article stating that the plunge in crypto asset prices and the surge in market mergers revealed problems within the crypto industry. While it flourished during a speculative boom, it struggled to build sustainable, revenue-generating businesses. Now, crypto venture capital is being pushed towards more traditional startup logic: product-market fit, profitability, and long-term user retention. Despite the White House's pro-crypto stance and a lenient regulatory environment, retail demand—once the flywheel of token-driven venture capital—has dried up. Native crypto funds are shifting towards better-performing areas, including stablecoin infrastructure and on-chain prediction markets, while some are expanding into adjacent sectors like fintech and artificial intelligence. However, with traditional institutions increasingly entering the market, native crypto expertise alone is no longer sufficient. "The market is consolidating around something that truly works," said Santiago Roel Santos, founder and CEO of cryptocurrency private equity firm Inversion. "As a category, Web3 is currently largely devoid of investment value. People have shunned NFTs, games, and those uninnovative, merely existing next DeFi platforms. Even well-funded crypto-native VCs are heavily shifting towards fintech, stablecoins, and prediction markets. Everything else is struggling to gain attention." Native crypto funds like Mechanism Capital and Tangent have begun focusing on deep tech, including investments in bot startups like Apptronik and Figure, marking a shift in investment focus away from the core of crypto. Funds are pulling away from high-stakes bets on NFTs, Web3 social platforms, and blockchain games—speculative narratives that defined the early-cycle. Metrics now undervalued—revenue, user retention, and willingness to pay—were often ignored in the early stages, when narrative buzz, token liquidity, and market share became substitutes for measuring project appeal. This has led some native crypto VCs to expand into fintech or artificial intelligence, according to Catrina Wang, general partner at Portal Ventures. “I wouldn’t be surprised if we see more funds quietly closing or downsizing,” said Tom Schmidt, general partner at venture fund Dragonfly. “They also face fierce competition from traditional VCs for the hottest deals in the Web 2.5 space.”