As 2025 approaches, how does the encryption VC view market opportunities and future trends?

As the New Year bell is about to ring, the encryption industry has ushered in a new development milestone. In 2024, the market has experienced recovery, innovation, and adjustment, with leading projects continuously consolidating their positions, while emerging tracks quietly rise, laying the foundation for the future. Throughout the ups and downs of this year, VC has served as a barometer for industry development, witnessing not only the changes in the market but also shaping the direction of the industry at the intersection of capital, community, and technology.

Standing at the starting point of 2025, we have invited more than a dozen top VCs to share their observations and thoughts on the encryption industry. They reflect on the highlights of the past year, analyze the current market opportunities and challenges, and make predictions about future development trends. In this rapidly changing field, which projects and sectors are becoming the focus of VCs? Let us delve into the perspectives of VCs and explore the "yesterday, today, and tomorrow" of the encryption industry.

The Most Impressive Projects of 2024

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

James Wo, founder and CEO of DFG, pointed out that Hyperliquid 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 tokens launched by Hyperliquid did not have VC or listings on centralized exchanges, making it one of the most successful airdrops in cryptocurrency history. "The platform is expanding its product offerings, launching its own HyperEVM ecosystem, which includes many native decentralized applications to increase the utility of its spot ecosystem. The platform earns a significant amount of fees through on-chain clearing and market-making, gradually eating into the market share of leading DEXs and centralized exchanges."

Chris, co-founder of Web3Port, also highly praised Hyperliquid for its market share, community airdrops and distribution mechanisms, 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 a "meme launch platform" to a top narrative and ignited a frenzy in the meme market. Chris stated that the insight from Pump.fun is that Web3 projects can achieve success by building products that are truly practical, have a high user experience, and are well-aligned with the market.

Ryan Rodenbaugh, CEO and co-founder of Wallfacer Labs, stated that the revival of mature lending protocols in the DeFi space, 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 much worth noting and tracking.

Among the answers provided by various VCs, Pudgy Penguin is one of the most frequently mentioned projects. Joanna, the founder and CEO of Jsquare, praised Pudgy Penguin, believing it has single-handedly driven the revival of the entire NFT sector. "As a first-round investor and Pudgy NFT holder, I fully felt the powerful energy generated by Luca as a representative of the new generation of entrepreneurs with a fusion mindset of Web2+Web3, which also strengthened one of my first principles: Invest in the next generation."

"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." Jsquare partner Dinghan stated that Ethena's collaboration with the BlackRock BUIDL Fund ensures that USDE can maintain stable returns even when the funding rate is negative, further solidifying its long-term viability.

How will the market trend of Bitcoin unfold?

Bitcoin has shown remarkable growth momentum in 2024. According to data statistics, as of December 31, 2024, the price of Bitcoin has increased by a total of 119.1%. This surge is mainly attributed to the institutional adoption of spot ETFs, the halving event in April, and the optimistic market sentiment 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 and demand relationship of Bitcoin will be further strengthened, and Bitcoin priced below $50,000 may become a thing of the past in future bull and bear cycles.

Regarding the upper limit that Bitcoin could reach next year, Ryze Labs research analyst Allen shares a similar view. He mainly uses the technical indicators Pi Cycle and 2Y MA Multiplier to assess the peak. He stated that historically, the times when these two indicators resonated were: December 5, 2013, December 16, 2017, and the most recent appearance of the Pi Cycle top signal on April 12, 2021. According to historical data, these indicators have high reference value. Allen pointed out that based on the estimation from the 2Y MA Multiplier, the peak of Bitcoin could be around $200,000. Both signals have ready-made indicators available on TradingView, which can be set up for alerts, making it convenient for peak assessment and reduction decision-making.

"If we predict from a cautious perspective, I believe that Bitcoin's next phase peak could reach between $120,000 to $150,000, followed by fluctuations between $100,000 and $150,000." said Evan Lu, Investment Manager at Waterdrip Capital, based on Trump's comments regarding the establishment of a Bitcoin strategic reserve policy. Assuming the market value of gold remains unchanged, as long as Bitcoin's market value does not surpass that of gold, Bitcoin can be regarded as a growth asset, and its price could reach $600,000 per coin, but this process may take 5 to 10 years.

Evan stated that during the last halving period (i.e., May 2020), Bitcoin experienced a gradual increase, reaching its first peak in April 2021, rising from about $9,000 to $65,000. During the period from April to July, Bitcoin's price saw a significant correction due to the "519 incident." However, the market then entered a second wave of increases, ultimately reaching the peak of the previous cycle. If we take the price on the day of this halving as a benchmark, it may signify the beginning of a new round of increases. It is expected that between the end of 2024 and the first quarter of 2025, Bitcoin may experience a slight decline or consolidation before entering the second wave of upward momentum, at which point the price could reach $120,000 to $150,000.

"Unlike in the past, the current market dynamics will be profoundly influenced by multiple factors, the most critical of which include the external liquidity brought by the Bitcoin spot ETF and the sustained capital inflows driven by future Bitcoin reserve policies." Evan believes this means that, from now until the peak next year, the Bitcoin market may not experience significant corrections, but instead maintain a trend of oscillating upward, gradually moving towards higher price levels.

In the topic of Bitcoin, Nemo, the investment director of Web3.com Ventures, quoted Michael Saylor, the co-founder of MicroStrategy: "If you spend 1000 hours researching, you will become a Bitcoin extremist. You will realize that it 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 worldwide the opportunity to invest in non-toxic assets."

Will the dispute between Meme and "VC coin" continue, and what is the good solution to resolve the dilemma?

The series of controversies surrounding "VC coins" has been an important topic that cannot be avoided over the past year. Will Wang, a partner at Generative Ventures, has proposed a novel perspective and viewpoint on this matter. He stated that once the scale of first-tier market VC funds exceeds $30-50 million, it becomes difficult for LPs to achieve excess returns. Will Wang believes that only with a sufficiently refined scale can VCs be compelled to delve into the early stages, truly supporting the entrepreneurs in need of assistance, thereby nurturing genuine "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 coins." This practice is actually an old issue for Web2 VCs, and in recent years, Web3 VCs have also not been spared.

"I believe that 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," Will Wang added.

What is the essence of the competition between Meme and VC coins? Chris, co-founder of Web3Port, pointed out that it ultimately boils down to a competition for market stock funds and liquidity. In an environment with limited new funds, VC coins, due to their low circulation and high FDV characteristics, along with the constant 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.

However, the PVP (player-to-player competition) attribute of Meme coins is essentially unsustainable, as most Meme coins, apart from a few top Meme projects, struggle to maintain long-term value support. Chris stated that, from the overall landscape of the encryption market, apart from BTC and ETH, as well as a very small number of DeFi infrastructure projects with stable income sources, most other projects' tokens are PVP, where market participants compete against each other, leading to mutual gains and losses. Regarding the current predicament of VC coins, he believes there is no good solution in the short term. Against the backdrop of tight market liquidity and the increasingly strong advantages of institutional investors, alleviating the issues surrounding VC coins requires undergoing a complete bull-bear cycle to allow the market to naturally clear and rebuild trust and fairness.

"Issuing tokens is not the end point, but the true starting point for the project's operation." Evan Lu, investment manager at Waterdrip Capital, believes that project parties should not approach projects with the mindset of "financing equals profit, issuing tokens equals delivering products." Instead, they need to seriously consider whether they can truly have practical application scenarios, whether they can have more stable cash flow income, and whether the project can still maintain active users and a real community after the token issuance.

Jiawei, the investment principal at IOSG Ventures, admitted that "VC currency projects" need to think better about Token Market Fit, whether there is a need to launch the token, what its purpose is, what kind of tokens the community will pay for, and how to involve a broader community to decentralize chips and strengthen interest binding.

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

As the encryption market rises, new narratives of innovation such as AI and DeSci are driving the industry towards a new stage of development. After enduring the baptism of market cycles, leading ecosystems continue to solidify their moats, while emerging tracks and projects are quietly rising, accumulating strength for future explosions. Looking ahead to the next year, which ecosystems, tracks, and projects are likely to stand out and become the "stars of tomorrow" leading the industry? Numerous institutions have provided unique insights.

Will Wang, a partner at Generative Ventures, believes that many people do not fully understand the nature of RWA. "We believe that RWA is fundamentally one thing: to use blockchain for accounting global mainstream financial assets." He stated that 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.

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

"AI Agent is expected to become the rising star of the encryption industry." Ryze Labs research analyst Allen stated that AI Agent has the ability to process massive 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 the pricing mechanism of liquidity pools, thereby significantly improving the efficiency of funds.