Source: Token Dispatch
Author: Vaidik Mandloi
Compiled and organized by BitpushNews
When the top investors who shaped an era begin to leave it behind
As one of the largest cryptocurrency-exclusive funds ever assembled, Paradigm has recently raised $1.2 billion and is shifting toward investing in startups in artificial intelligence (AI), robotics, and aerospace.
They have even completely removed the word "crypto" from their official website! Their investment logic is that cryptocurrency was merely their first frontier, but so many other new developments are now taking place that they simply cannot afford to ignore them.
Similarly, Framework Ventures also closed a $400 million fund in June, beginning to expand its investments beyond the crypto space—and they are far from alone. Over the past year, nearly every top-tier crypto-focused fund has begun drifting toward broader themes and investment mandates. In the first quarter of 2026, only eight new crypto-exclusive venture investment funds were launched globally, marking the lowest number since 2020.
This article will explore in depth whether crypto-focused venture capital as a fund category is truly declining. If so, how does this shakeout map onto the lifecycle of these funds, and what does it mean for crypto startups—they will now have to compete for attention within multi-sector investment portfolios.
The lifecycle of a professional fund
Crypto-focused funds emerged because they were willing to invest time in building competitive advantages and were the only ones at the time willing to take on and underwrite such risks. Understanding how Solidity contracts actually function and building relationships with anonymous developers on Discord—these were not things that Tiger Global’s growth equity partners in 2017 could access.
To understand whether crypto VC as an investment category is nearing its end, it’s helpful to examine how professional fund categories have evolved historically, as this phenomenon has occurred more than once in the past.
Between 2006 and 2011, climate tech emerged as a mainstream investment thesis. VCs established dedicated clean energy funds for the same reason that crypto VCs created dedicated blockchain funds: they believed they had keenly identified a transformative technological shift before generalist investors caught on, and sought to build entirely new investment firms around this conviction.
They poured over $25 billion into clean energy startups but lost more than half of that money. Interestingly, the technology itself did work, and today the clean energy market is enormous—leading to an 85% drop in solar costs over the same period. But VCs misjudged by applying the software startup model to companies that actually required $200 million in project financing and 15 years to become profitable, handing out $5 million seed checks instead.
The Energy Initiative at MIT conducted a post-mortem and found that the venture capital model has fundamental flaws in this field. Professional VCs, by taking on technological risk, funded the experimental phase and early R&D, lending credibility to the sector and attracting larger pools of capital; however, once the technology matured to the point where infrastructure lenders and project finance facilities could underwrite it, the investors’ informational advantage disappeared.
Data source: MIT Energy Initiative
SPACs (Special Purpose Acquisition Companies) have followed a similar trajectory. For context, a SPAC is a “blank check company” with no actual operations that raises funds through an IPO and then merges with a private company to help it go public faster than through a traditional IPO. In 2020 and 2021, some investors viewed them as a replicable vehicle and built entire companies around them.
Chamath Palihapitiya once raised $1.6 billion in SPAC-specific capital. But by 2022, two-thirds of the SPACs formed in 2021 had failed to complete a merger, forcing Chamath to return the funds he had raised. All of this happened in less than 24 months, giving you a vivid sense of how rapidly things can change once a professional advantage disappears.
This pattern keeps recurring across vastly different industries due to deeper underlying reasons. Carlota Perez, in documenting 250 years of technological revolutions, summarized this as the “techno-economic paradigm.” She noted that each major technology goes through an early stage—during which only “insiders” understand it, and those closest to the technology become the most valuable investors, as they alone can distinguish truth from falsehood. Later, the technology matures and begins to integrate into existing institutional frameworks.
Data source: AVC
At that point, the insider advantages that once gave professional investors their edge become less important, as this asset class becomes “legible” to generalist investors with much larger balance sheets. Fred Wilson anticipated this moment in crypto long ago; as early as 2015, he wrote that when cryptocurrency crossed from what Pérez called the “installation phase” into the “deployment phase,” it would hit a major “financial inflection point.”
That inflection point is happening right now, and you can clearly see what the deployment phase of cryptocurrency looks like:
Fintech giant Stripe acquired Bridge and launched its own stablecoin blockchain;
Traditional financial giants like BlackRock and Fidelity have launched their own tokenized money market funds;
Even traditional payment giants like Visa and Mastercard are building settlement layers on top of stablecoins.
These companies do not need crypto-savvy venture capitalists to explain MEV extraction and validator economics, as specialized crypto knowledge is not important to them.
What they need is regulatory approval, distribution channels, and banking partnerships—the same things any other fintech company needs to scale.
Today, generalist investors from Sequoia or Founders Fund can evaluate a crypto exchange in the same way they assess Stripe or Plaid.
Barbell Effect and Drift
So, if the professional advantage has already eroded, what will become of the funds built on that advantage? Their fate will depend entirely on the economics of their fund size.
Keep in mind that the venture capital industry has been diverging into a "barbell" structure for years:
Data source: The VC Corner
One end of the barbell consists of super-platforms like a16z, Sequoia, and Founders Fund, which can absorb an entire asset class as a vertical niche within their investment portfolios;
The other end of the barbell consists of tiny "cottage-industry" funds that write small, high-conviction checks based on deep industry expertise, capable of recouping the entire fund’s cost through a single breakout project;
Everything in between has become a “kill zone”—and this is precisely where the majority of crypto-focused funds currently find themselves.
A $500 million fund needs to generate approximately $1.5 billion in total exit proceeds to return 3x net gains to its LPs (limited partners); this cannot be achieved solely by writing seed checks, as no seed portfolio can produce enough breakout exits at this scale. At the same time, you cannot compete with 5-billion-dollar giants in growth-stage deals that effortlessly write $100 million checks without hesitation. For example, in 2025, just Founders Fund raised 1.7 times more capital than all emerging fund managers combined in the first half of the year. Capital is accelerating toward extreme concentration.
This barbell strategy also explains why Framework Ventures and Paradigm appear to be doing the same thing, yet are fundamentally very different:
The framework's size remains at $400 million—too large to recoup fund costs with just a few seed-stage bets, yet too small to compete with mega-funds in growth-stage deals. At this scale, the crypto sector alone cannot generate sufficient exits, so they had to expand beyond it.
Paradigm, with its $1.2 billion scale, is large enough to attempt a direct transformation into a multi-sector platform—this is strategically entirely different.
In simple terms: the size of your fund determines which end of the barbell you land on, and that in turn determines what options you have available.
Even those crypto VCs who claimed to be “holding the line” have completely redefined what “crypto” means. Dragonfly raised $650 million in February with 30% oversubscription. Yet, they explicitly stated that non-financial crypto projects have utterly failed, and the firm is now betting heavily on stablecoins and prediction markets. A16z’s latest $2.2 billion crypto fund, raised in May 2026, is only half the size of the $4.5 billion fund raised in 2022; moreover, Chris Dixon has even shifted his framing—from positioning crypto as “a new computing paradigm” to viewing “finance” as the foundation of everything in the space.
These institutions' so-called "crypto-only" investments today are essentially betting on financial infrastructure built on blockchain rails—the very same infrastructure that generalist funds with larger checks are also investing in.
A powerful external force driving all of this comes from LP behavior. The venture capital industry is currently facing a DPI (distributed paid-in) crisis, with 2021 vintage funds recovering only about 0.08x of their principal on average. LPs burned in the 2022 crypto crash have now found a highly visible alternative in AI—AI has absorbed 70% of global funding this year. As a result, when LPs have been sitting on dead capital for four years and see AI companies delivering the returns they once expected from crypto, fund managers have no choice but to forcibly establish AI exposure.
This is concerning for crypto creators/founders who are still building their projects, as it means the group of investors who truly understand what they’re doing and are committed to supporting them is steadily shrinking.
In the face of this contraction, the most immediate reaction might be: Why not just have the founders go directly to generalist venture funds? On paper, this makes sense—Sequoia and Founders Fund can write larger checks and bring distribution channels that no crypto-native fund can match.
But there is a serious issue here: since AI companies today absorb the vast majority of trading flow, a crypto founder investing within a generalist platform’s portfolio will have to compete with these AI companies for attention. Your project must be exceptionally outstanding to even make it onto the investment committee’s agenda—this is entirely different from pitching to a professional investor who lives and breathes crypto.
Another issue concerns the overall growth of the crypto ecosystem. Professional VCs used to do more than just write checks—they funded the infrastructure layers that enabled the next generation of applications. Paradigm funded research into MEV, and Dragonfly funded cross-chain tools; from the perspective of a single transaction, these clearly don’t generate direct commercial returns, but they build the public goods upon which the entire ecosystem relies. A generalist fund would never fund these, as they evaluate deals based on standalone returns.
Conclusion
I think in a few years, calling yourself an "crypto investor" will feel just like calling yourself an "internet investor."
Cryptocurrency has now become a foundational technology, a set of rails for building financial products. You don’t build investment themes around the pipes; you build applications on top of them. If Perez’s theoretical framework still holds, this is exactly what is happening—cryptocurrency is no longer what you invest in; it’s the infrastructure beneath what you’re investing in.
But this does not mean that professional crypto funds have disappeared entirely.
As new categories such as tokenization and on-chain securities continue to emerge, there will always be niche markets inaccessible to generalist investors, with small-scale foundations forming around these niches in every cycle.
The current generation of large-scale hedge funds that cannot survive solely on niche crypto trading is fading away. This category will continue to reorganize around a barbell structure, with generalist investors taking the large checks and smaller specialized investors betting on frontier areas.
Early professional funds in 2017-18 backed Uniswap and Ethereum, along with the infrastructure enabling stablecoins to operate. But that era is changing; some of the most successful recent crypto projects, such as Hyperliquid and MegaETH, have already adopted a model with zero VC involvement, funded entirely through community rounds.
Professional funds have made cryptocurrency accessible enough for general investors to enter the market; but now, an increasing number of founders are realizing that they can achieve success on their own, even without these VCs.
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