Crypto venture capital funding to recover in 2025: JPMorgan

Cryptocurrency venture capital (VC) funding is expected to recover in 2024 as regulatory clarity improves and crypto-friendly policies gain traction, according to a recent research report by JPMorgan.

The Wall Street bank highlighted that VC funding in the crypto industry has been subdued in recent years, largely due to enforcement actions by the U.S. Securities and Exchange Commission (SEC) and regulatory uncertainty during the previous administration. However, the report written by analysts led by Nikolaos Panigirtzoglou noted that the landscape is beginning to shift.

“The rollout of the EU’s Markets in Crypto Assets (MiCA) regulations at the end of December is expected to further bolster VC engagement in the sector,” JPMorgan said.

While the outlook is optimistic, JPMorgan said that VC funding levels are unlikely to match the peaks seen in 2021 and 2022. The report pointed to several challenges facing the industry, including competition from traditional finance (TradFi) giants such as Blackrock and Franklin Templeton, which are increasing their participation in the crypto market.

This growing presence of TradFi firms in areas such as stablecoins, tokenization, and decentralized finance (DeFi) leaves less market share for venture capital firms, the report said.

Additionally, nascent crypto projects are moving away from large token sales to VCs and are increasingly turning to community-driven platforms to raise funds. High interest rates and the growth of cryptocurrency exchange-traded funds (ETFs) also pose challenges for VC firms.

“The growth of crypto ETF products is inducing a trend toward passive investing, which could divert capital away from venture capital firms,” JPMorgan noted.