As we enter 2025, opportunities and challenges in the crypto market from the perspective of VCs

As the new year approaches, the encryption industry has reached a new development node. In 2024, the market experienced recovery, innovation, and adjustment, with leading projects continuously solidifying their positions, while emerging tracks quietly rise, laying the foundation for the future. As a barometer of industry development, VC has not only witnessed changes in the market but is also shaping the direction of the industry at the intersection of capital, community, and technology.

Standing at the starting point of 2025, we invited several top VCs to share their observations and thoughts on the crypto industry. They reviewed the highlights of the past year, analyzed the opportunities and challenges in the current market, and made predictions about future development trends. In this rapidly changing field, which projects and tracks are becoming the focus of VCs' attention? Let's explore the "yesterday, today, and tomorrow" of the crypto industry together.

Most Impressive Projects of 2024

In the past year, the encryption industry has welcomed a new wave of growth driven by market recovery and technological innovation. From infrastructure upgrades to breakthroughs in emerging tracks, numerous projects have demonstrated strong vitality and innovative potential. Some of these projects, thanks to their unique technological paths or business models, have not only attracted a lot of attention but also left a profound mark both within and outside the industry.

James Wo, the founder and CEO of DFG, pointed out that Hyperliquid initially started as a high-performance decentralized exchange for perpetual contracts, attracting a large number of users while maintaining trading execution speed and liquidity. In addition, the token launched by Hyperliquid became one of the most successful airdrops in crypto history. The platform is expanding its products and launching its own HyperEVM ecosystem, which includes many native decentralized applications to enhance the utility of its spot ecosystem. The platform earns substantial fees through on-chain liquidation and market making, gradually eating into the market share of leading DEX and CEX.

Chris, co-founder of Web3Port, also highly praised Hyperliquid, being impressed by its market share, community airdrop and distribution mechanism, and wealth effect. Additionally, he mentioned Pump.fun------the most successful meme coin launch platform this year. Compared to existing platforms in the market, Pump.fun has successfully elevated the concept of "meme launch platform" to a top narrative, igniting a wave in the meme market. Chris stated that the insight from Pump.fun is that Web3 projects can achieve success by building products that truly have practicality, high user experience, and market fit.

Ryan Rodenbaugh, CEO and co-founder of Wallfacer Labs, stated that the revival of mature lending protocols in the DeFi space such as AAVE and Compound, along with the emergence of high-quality newcomers like Morpho, Euler, and Ajna, is exciting. Although DeFi has not received as much attention in the current cycle as it has in the past, the understated success of these protocols is still very noteworthy and worth tracking.

Among the many responses from VCs, Pudgy Penguin is one of the most frequently mentioned projects. Joanna, the founder and CEO of Jsquare, has praised Pudgy Penguin, believing that it has single-handedly driven the revival of the entire NFT sector. As a first-round investor and Pudgy NFT holder, she has fully experienced the powerful energy of Luca as a representative of the new generation of entrepreneurs, who embodies the fusion thinking of Web2 and Web3, which has also strengthened her belief in the principle of "Invest in next generation."

Jsquare partner Dinghan stated that Ethena has performed remarkably in the DeFi space with its USDE stablecoin, profiting from high funding rates by establishing 1x long and 1x short positions on centralized exchanges. The collaboration between Ethena and the BlackRock BUIDL fund ensures that USDE can maintain stable returns even when funding rates are negative, further solidifying its long-term viability.

How will the market performance of Bitcoin unfold?

Bitcoin has shown astonishing growth momentum in 2024. As of December 31, 2024, the price of Bitcoin has increased by a cumulative 119.1%. This rise is mainly attributed to institutional adoption of spot ETFs, the halving event in April, and market optimism following the U.S. elections. Looking ahead to 2025, Web3Port co-founder Chris believes that the Bitcoin bull market is likely to continue, with a breakthrough of $200,000 next year being a high-probability event. He stated that as the market matures, the supply-demand relationship of Bitcoin will be further strengthened, and Bitcoin priced below $50,000 may become a thing of the past in future bull-bear cycles.

Ryze Labs research analyst Allen primarily uses the technical indicators Pi Cycle and 2Y MA Multiplier to determine market tops. He noted that historically, the times when these two indicators resonated were: December 5, 2013, December 16, 2017, and the most recent Pi Cycle top signal occurred on April 12, 2021. According to historical data, these indicators have a high reference value. Allen pointed out that based on the 2Y MA Multiplier estimation, Bitcoin's top could be around $200,000.

Evan Lu, the investment manager at Waterdrip Capital, adopts a cautious perspective in his prediction, believing that Bitcoin's next phase peak could reach between $120,000 and $150,000, followed by fluctuations between $100,000 and $150,000. Based on Trump's comments regarding the establishment of a Bitcoin strategic reserve, it is assumed that the market value of gold remains unchanged; as long as Bitcoin's market value does not surpass that of gold, Bitcoin can be seen as a growth asset, with its price potentially reaching $600,000 per coin, though this process may take 5 to 10 years.

Evan stated that unlike before, this round of market dynamics will be profoundly influenced by multiple factors, the most crucial of which include the external liquidity brought by the Bitcoin spot ETF and the continuous capital inflow driven by future Bitcoin reserve policies. This means that from now until the peak next year, the Bitcoin market may not experience significant corrections but will maintain a trend of oscillating upward, gradually moving towards higher price levels.

Nemo, the Investment Director of Web3.com Ventures, quoted Michael Saylor, the co-founder of MicroStrategy: "Spend 1000 hours studying, and you will become a Bitcoin extremist. You will realize that this is not just a technology, but a moral imperative. Bitcoin brings freedom, economic, and property rights to 8 billion people, while also providing 4 million companies around the world the opportunity to invest funds into non-toxic assets."

Will the dispute between Meme and "VC coins" continue, and what is the remedy to resolve the dilemma?

Will Wang, a partner at Generative Ventures, presented a novel perspective, stating that once the scale of primary market VC funds exceeds $30-50 million, it becomes difficult for LPs to achieve excess returns. Will Wang believes that only with a sufficiently compact scale can VCs be compelled to delve into the early stages and truly support entrepreneurs in need of assistance, thus nurturing real "myths." In contrast, large-scale VC funds often fall into the trap of managing scale expansion, participating in later rounds, and launching the market-criticized "VC tokens." This practice is actually an old problem of Web2 VCs, and the Web3 VCs have not been immune in recent years.

Wang added: "I believe this situation will gradually be corrected. Whether it is technology or financial innovation, there will always be a stage of non-consensus, and this is precisely when VC should take action. The market will ultimately reward those VCs who dare to act during non-consensus periods."

Chris, co-founder of Web3Port, pointed out that the essence of the competition between Meme and VC coins ultimately boils down to the competition for existing market funds and liquidity. In an environment with limited new funds, VC coins, due to their low circulation and high FDV characteristics, along with the continuous emergence of new VC coin projects, make it difficult for market funds to sustain, significantly reducing retail investors' willingness to take over. The advantage of Meme coins lies in their full circulation and fair distribution mechanism, which aligns with the psychology of market investors, becoming a "new type of weapon" for retail investors to counter the advantages of institutions.

Chris stated that from the overall pattern of the crypto market, aside from BTC and ETH, and a very small number of DeFi infrastructure projects with stable income sources, most of the tokens of other projects are PVP, with market participants competing against each other, leading to shared wins and losses. Regarding the current predicament of VC, he believes there is no good solution in the short term. In the context of tight market liquidity and the increasing advantages of institutional investors, alleviating the issues surrounding VC requires going through a complete bull and bear cycle, allowing the market to clear naturally, and rebuilding trust and fairness.

Evan Lu, the investment manager at Waterdrip Capital, believes that launching a token is not the end, but rather the starting point for the project's actual operation. Project teams need to seriously consider whether they can genuinely implement application scenarios, whether there can be more stable cash flow income, and whether the project can still maintain active users and a real community after the token launch.

Jiawei, the investment principal of IOSG Ventures, candidly stated that "VC projects" need to think better about Token Market Fit, whether there is a necessity to launch the token, what its use is, and what kind of tokens the community will pay for, in order to involve a broader community and strengthen interest alignment by decentralizing the chips.

Which ecosystems, tracks, projects, or standout performances will become the rising stars of the industry?

Will Wang, a partner at Generative Ventures, believes that many people do not fully understand the nature of RWA (Real World Asset). He stated that RWA is essentially one thing: enabling blockchain to account for mainstream financial assets globally. Currently, the penetration rate of this "on-chain accounting" is less than 0.1%. Even if the penetration rate increases by just one order of magnitude, it could give rise to multiple secondary assets similar to ONDO and USUAL.

IOSG Ventures investment principal Jiawei stated that re-staking will be the major narrative for 2024, which has not yet been reflected in the coin prices. With the gradual launch of AVS, it may reach a peak in 2025; in addition, ZK-related projects (such as RiscZero and hardware-accelerated Ingonyama) will also gradually showcase their market potential.

Ryze Labs research analyst Allen stated that AI Agent is expected to become the rising star of the crypto market. AI Agent has the capability to process vast amounts of market data and can make precise trading decisions in real-time in the future, with a response speed far exceeding that of traditional human traders; in the DeFi field, AI Agent can optimize lending rates and liquidity pool pricing mechanisms, significantly enhancing the efficiency of capital utilization; furthermore, it opens up new possibilities for the intelligent management of crypto assets, redefining the boundaries of asset management.

The PayFi track has been mentioned multiple times by various institutions, and it is undoubtedly the focus of market attention. With the popularization of cryptocurrencies, ecosystems that can achieve seamless and low-cost payments are entering a period of rapid development. Jsquare partner Dinghan predicts that projects that connect traditional finance with cryptocurrencies (such as Layer 2 solutions and stablecoin issuers) will receive widespread attention in the future. Payment protocols that can deeply integrate with mainstream services and conveniently facilitate the conversion between cryptocurrencies and fiat currencies will become the key force driving the integration of cryptocurrencies into daily life.

The integration of AI and blockchain is also seen as an important development direction for the future. Dinghan stated that with the rapid rise of decentralized AI infrastructure and AI agents, this field is ushering in a new growth cycle. Projects that aim to build decentralized AI networks or AI-driven applications are on the verge of launching and are expected to become new highlights in the industry. Blockchain provides a trustworthy foundational layer for AI interactions and transactions, enhancing data transparency and security, and opening up new possibilities for the widespread implementation of autonomous AI applications, further accelerating the pace of innovation in this field.

The old saying "mass adoption" is expected to usher in a breakthrough? Who will lift the holy grail?

James Wo, the founder and CEO of DFG, stated that vertical fields such as DePIN are attracting Web2 users by providing value to their ecosystems through additional resources. For example, Helium connects existing Web2 telecom giants through 5G networks, while Render provides low-cost GPUs to support gaming, rendering, and AI fields. James believes that the next area to drive larger-scale adoption may be the payment sector. Infrastructure capable of providing efficient crypto payment and fiat redemption solutions for physical stores will drive a new wave of users, and as retail investors begin to invest in and hold crypto assets, this trend will further accelerate.

YBB Capital investment research manager Zeke believes that, based on the recent trends in industry discussions, the payment competition