The relationship between Bitcoin prices and crypto project fundraising has always been a topic of fascination. Historically, when Bitcoin’s price drops, so does the volume of capital raised by new projects. Despite Bitcoin and Ethereum trading well above their 2018 bull market peaks, fundraising activity has regressed to pre-2020 levels. While BTC has recovered from its 2022 lows, investment inflows continue to dwindle.
Venture capitalists (VCs) are often seen as market pioneers—strategic players who make forward-looking decisions and set trends. So why do they appear to be following the market rather than leading it?
Even as market sentiment shows signs of stabilization, VC fundraising totals have dropped to levels last seen during the 2018–2019 bear markets. Are VCs seeing something retail investors aren’t? Shouldn’t they be “buying the dip” at lower valuations? After all, post-investment lockups prevent immediate selling, meaning they may ultimately exit during a downturn.
To uncover insights, I spoke with several crypto VCs and founders of recently funded DeFi projects. Sachi Kamiya from Polygon Ventures, Etiënne of TRGC, and an anonymous angel investor (referred to as "Anon") shared their perspectives. Additionally, Jaimin, founder of Caddi—a browser extension that saves users money and protects against scams in DeFi trades—offered valuable on-the-ground insights. Caddi recently raised $650K from prominent firms like Outlier Ventures, OrangeDAO, and Psalion VC, as well as angel investors including Bryan Pellegrino, Alex Svanevik, and Pentoshi.
The Current State of Crypto Fundraising
According to data from CoinCarp, the total capital raised in the crypto sector in 2023 reached $18.6 billion across 1,053 deals—on the surface, a significant improvement over 2020. However, this figure includes Web2 companies like Stripe, which alone accounted for $6.5 billion in funding.
Focusing specifically on DeFi—the sector closest to many builders’ hearts—the picture shifts dramatically. In 2023, there were only 175 DeFi funding rounds totaling $779 million, averaging $4.45 million per round. Compare that to the previous year: 341 rounds raising $3.56 billion, with an average of $10 million per deal.
👉 Discover how top investors identify high-potential blockchain projects before they go mainstream.
This represents a more than 55% decline in average funding per round. DeFi ranked second-to-last in fundraising performance, ahead only of NFTs. Over the past 12 months, DeFi protocols raised just $1.14 billion, while CeFi startups secured over $2 billion.
DEXs (decentralized exchanges) dominated DeFi fundraising in Q3 2023, accounting for 38% of all DeFi investments (per Messari's Q3 Funding Report). Meanwhile, major crypto firms like Yuga Labs, Ledger, and Chainalysis have announced significant layoffs due to tightening capital conditions.
Yet not all news is bleak. Notable protocols have still managed to raise substantial funds—Blockchain Capital recently closed an $580 million fund focused on DeFi, gaming, and infrastructure. This suggests institutional interest hasn’t vanished; it’s simply become more selective.
Jaimin notes: “The market feels as tough as it has in years, largely due to macroeconomic headwinds.” Sachi Kamiya echoes this: “Overall sentiment among crypto VCs is bearish. Negative sentiment means fewer early-stage projects are securing funding.”
Anon estimates current fundraising volume is “only about 10% of what we saw during the bull market.” But Etiënne observes a key difference from past downturns: “Unlike in 2019, there’s real dry powder waiting on the sidelines. Back then, capital was almost entirely absent.”
That pent-up capital creates opportunity.
Why This Bear Market Holds Hidden Potential
All interviewees agree: now is an ideal time to discover undervalued gems. Valuations have cooled from the frothy heights of the last bull run. Sachi emphasizes that investors now have time for thorough due diligence and are prioritizing real user metrics and actual adoption over hype.
However, Jaimin points out a critical challenge: “Investors want exponential growth—whether in revenue, users, TVL, or transaction volume. But sustainable growth is incredibly difficult right now due to low new user inflow, reduced volatility, depressed prices, and weak sentiment. Selling just a vision isn’t enough anymore.”
Sachi remains optimistic: “Investing now makes sense—some of these projects will shine in the next cycle.”
Do We Even Need Crypto VCs?
There’s growing skepticism toward VCs in the crypto space. A common complaint? Institutional investors often dump tokens on retail buyers after early access.
Algod, a vocal critic on Twitter, argues that the best projects will launch fairly without VC backing because teams no longer want to exit liquidity prematurely. He believes true momentum comes from communities—not from venture capital.
Even traditional investors share concerns. Jason Calacanis, angel investor in Robinhood and Uber, warned Bloomberg about “scam” VCs dumping overvalued tokens on unsuspecting retail investors. He predicts legal and even criminal consequences for those pushing worthless securities.
Can we bypass VCs entirely? The idea of “fair launches” sounds appealing—but how fair are they really?
Anon cautions: “Fair launches aren’t truly fair. Teams and insiders know about them early and can manipulate liquidity.” Jaimin agrees: “Manipulation is possible in many ways—there’s always someone dumping on someone else.”
Etiënne adds: “Whether it’s a fair launch or not, the profit motive remains unchanged. Retail isn’t innocent—they’re just smaller gamblers.”
Sachi concedes that fair launches can work—but only for experienced founders who’ve already built crypto businesses. For newcomers without resources or networks? It’s an uphill battle—especially for non-trivial projects that aren’t simple forks.
Still, I remain hopeful. The birth of YFI during DeFi Summer 2020 remains one of my favorite moments in crypto history. I hope we see more authentic fair launches in the next cycle.
That said, VCs play vital roles: providing initial capital, strategic guidance, network access, and credibility.
What Can Retail Investors Learn From VCs?
One might expect savvy VCs to time the market—buying aggressively at the bottom and exiting during euphoria. Yet fundraising data shows capital follows Bitcoin’s price rather than leads it.
Sachi clarifies: “Not all VCs follow trends. U.S.-based firms often align with market cycles, but many Asian VCs become more active during bear markets—they see opportunity where others see risk.”
Anon notes that projects often raise in bear markets but delay announcements until timing feels optimal.
Token lockups also complicate exit strategies. Investing during a bear market allows VCs to sell during recovery or bull phases after locks expire. Conversely, investing at peak prices may force exits during downturns—further depressing already weak altcoin markets.
Timing remains challenging. As Anon explains: “TGE (Token Generation Event) timing introduces uncertainty—it often starts unlock clocks. But with smart lockup structures and good product-market fit, profitable exits are still possible.”
Sachi highlights that Polygon Ventures evaluates unlock schedules based on team quality and crypto-native expertise: “Managing tokens requires skill—exchange listings, market making, etc. The more native the team, the higher the chance of long-term success.”
So what lessons can retail investors take?
Etiënne is blunt:
“Ha! Learn nothing. Stop listening to VC noise. I’d silence 95% of them across all platforms. Instead, study timeless thinkers like Howard Marks, Nassim Taleb, Warren Buffett, Stanley Druckenmiller, Ed Thorp, Jim Simons, or Mark Spitznagel.”
He adds: “Only listen to VCs with 30-year track records—like Mike Moritz or Doug Leone—not those saying ‘I got lucky with token XYZ, now let me teach you investing.’ Those people have nothing valuable to offer.”
Anon stresses diversification: “Even some VCs made this mistake and lost heavily.” He encourages community engagement: “As crypto users, we should educate others, share feedback—it adds immense value.”
Sachi advises critical thinking: “Ask the right questions. Are these real user metrics? Is the founder credible?”
“When a project announces a partnership, look beyond headlines. Deals involve hidden components—token swaps, grants, incentives—that aren’t disclosed. Always assess whether traction is organic before investing.” — Sachi Kamiya, Polygon Ventures
Jaimin emphasizes continuous learning: “Improve your skills, read constantly, never stop learning. DeFi evolves fast—deep knowledge lets you contribute meaningfully and make better decisions.”
👉 See how expert analysis separates real innovation from empty hype in today’s crypto market.
Frequently Asked Questions
Q: Are VC-funded projects inherently risky for retail investors?
A: Not necessarily—but awareness is key. Retail investors should research token unlock schedules, team credibility, and whether traction is organic or artificially inflated by funding announcements.
Q: Is now a good time to invest in early-stage crypto projects?
A: Yes—for informed investors. Lower valuations and reduced competition create opportunities to back strong teams building real solutions during market downturns.
Q: Can retail investors compete with VCs in identifying promising projects?
A: Absolutely. With access to on-chain analytics, community sentiment tools, and public roadmaps, retail can often spot trends before institutions react.
Q: What’s the biggest mistake retail investors make when following VC moves?
A: Assuming VCs always act rationally or long-term. Many are under pressure to deliver returns and may exit early—retail should verify alignment with project fundamentals.
Q: How can I evaluate if a project’s growth is organic?
A: Look at consistent user growth over time, rising transaction volumes not tied to token releases, genuine community discussions (not paid promotions), and sustainable revenue models.
Q: Should I avoid projects without VC backing?
A: No—many groundbreaking innovations start without institutional support. Focus on team experience, product utility, and community strength instead.
👉 Start building your own edge in crypto investing with tools trusted by professionals worldwide.