Meltdown! Crypto VCs are collectively “defecting”—who can keep $BTC $ETH ’s bull market alive?

With the $ETH you have on hand, it may soon be that top-tier institutions no longer want to step in to take the deal. This isn’t an exaggeration—it’s a structural change that’s happening right now.

Paradigm, one of the largest pure-crypto dedicated funds globally, has just completed a $1.2 billion new fundraise—but guess where the money will go: artificial intelligence, robotics, and aerospace. It even removed every occurrence of the words “cryptocurrency” from its official website. The core logic can be summed up in one sentence: crypto was only the first hype cycle they rode—other cutting-edge frontiers can’t be missed either.

Framework Ventures also raised $400 million this June, launching a cross-sector strategy as well. In the first quarter of 2026, the entire market only set up 8 new pure-crypto venture capital funds, the lowest since 2020. The whole industry is being reshuffled, and dedicated crypto funds are moving toward extinction.

Why aren’t they investing in crypto anymore? Because the information barriers have already collapsed. Back in 2017, Tiger Global couldn’t make heads or tails of Solidity, and it was hard to even talk to anonymous developers on Discord. But now, Wall Street giants can value crypto projects just like ordinary financial tech. Stripe acquired Bridge and issued stablecoin-focused chains; BlackRock and Fidelity issued tokenized money market funds; Visa and Mastercard use stablecoins for settlement. They don’t need you to explain MEV extraction—they only need regulatory licenses and banking channels.

History always repeats. In the clean energy hype from 2006 to 2011, capital poured in $25 billion, and more than half ended up in losses. The reason was that venture capital followed a software-project logic to invest small amounts, while clean energy required large funding rounds and long payback periods. Once the technology matured, industrial capital moved in, and the information advantage of dedicated funds disappeared. SPACs walked the same path—Chamath’s $1.6 billion dedicated fund vanished within two years.

Carlota Perez’s theory of techno-economic paradigms is crystal clear: each technological revolution starts with those in niche circles understanding it first, then ends when it gets integrated into the traditional system. Crypto is standing at this turning point now—“the construction phase” is over, and the “mainstream rollout” phase begins. If diversified funds can understand the space, why can dedicated funds still survive?

So you’ll see polarization: at one end are behemoths like a16z, Sequoia, and Founders Fund, able to treat crypto as a vertical segment; at the other end are small boutique funds betting on frontier projects based on deep understanding. And funds in the $500 million middle range face a “no-man’s-land” dilemma: they can’t make big money at seed stages, and they can’t outcompete larger checks in growth rounds—this is the “death zone.”

Here’s an example: In the first half of 2025, Founders Fund raised an amount equal to 1.7 times the total of all emerging small funds combined. Capital continues to concentrate at both ends. Framework and Paradigm may both be widening their focus, but their underlying strategies are completely different—Framework has only $400 million, neither too big nor too small, so it can only be pushed into diversification; Paradigm has $1.2 billion, so it can directly transition into a cross-industry platform.

Even institutions that claim to stick with crypto have redefined what “crypto investing” means. Dragonfly raised $650 million this year, betting only on stablecoins and prediction markets. a16z raised a $2.2 billion dedicated crypto fund in May 2026—only half of its $4.5 billion in 2022. Partner Chris Dixon changed the narrative from “a brand-new computing paradigm” to “finance as the underlying foundation.” Put plainly, what’s called “pure crypto investing” today is, in essence, blockchain financial infrastructure—and diversified funds are also heavily positioning in this direction.

What’s driving all of this is also a shift in LP behavior (capital providers). For funds established in 2021, the average realized return on paid-in capital was only 0.08x. The 2022 bear market made LPs lose badly, and the AI track then siphoned off 70% of global early-stage market capital. LPs watch money that can’t be realized for four years, while AI projects deliver high returns—fund managers are forced to pivot into AI.

This is bad news for entrepreneurs still doing crypto. Some will say to go to diversified funds instead—at least in theory, Sequoia can open bigger checks and resources are better. But reality has two hard constraints: first, AI projects have taken most of the attention of diversified funds, so crypto projects must compete against massive numbers of AI projects for limited time on investment committees; second, crypto’s underlying infrastructure requires long-term investment—for example, Paradigm funds MEV research, and Dragonfly supports cross-chain tooling. These individual projects don’t make money on their own, but they build public industry infrastructure, and diversified funds will never touch this kind of loss-making deal.

I think in a few more years, the term “crypto investors” will become as outdated as “internet investors.” Crypto has turned into infrastructure, and no one will separately build an investment logic around a pipeline. But that doesn’t mean dedicated funds will completely disappear—new sub-sectors like tokenization and on-chain securities will still give rise to small dedicated funds. What truly will die out is this current batch of large pure-crypto funds in the mid-to-large range.

The whole sector will be rebuilt into a dumbbell structure: large growth rounds go to diversified funds, and frontier experimental projects go to small funds. Early dedicated funds in 2017–2018 incubated Uniswap and the Ethereum ecosystem, but flagship projects like Hyperliquid and MegaETH have already raised through community fundraising end-to-end, completely bypassing venture capital. Back then, dedicated funds gave crypto a clear investment logic; now, entrepreneurs realize that even without venture capital, you can still complete a cold start.

The $BTC $ETH you have in hand comes with a narrative that is undergoing a fundamental shift. Don’t expect another big wave of pure-crypto VCs to lift the next cycle. For the next bull market, it may have to rely on diversified funds and the community themselves.

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