At the beginning of 2025, analyzing market insights and investment opportunities in encryption VC

As the New Year bells are about to ring, the encryption industry has ushered in a new development node. In 2024, the market has experienced recovery, innovation, and adjustment, with leading projects continuously consolidating their positions and emerging tracks quietly rising, laying a foundation for the future. In the ups and downs of this year, VC, as a weather vane for industry development, has not only witnessed the 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 have invited several top VCs to share their observations and thoughts on the encryption industry. They reviewed the highlights of the past year, analyzed the current market opportunities and challenges, and made 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 perspective 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, with 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, the founder and CEO of DFG, pointed out that Hyperliquid initially started as a high-performance perpetual contract decentralized exchange, attracting a large number of users while maintaining trading execution speed and liquidity. In addition, the token launched by Hyperliquid has no VC or listing on centralized exchanges, becoming 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 increase the utility of its spot ecosystem. The platform earns significant fees through on-chain clearing and market making, gradually eating into the market share of top DEXs and CEXs.

Chris, co-founder of Web3Port, also gave high praise to Hyperliquid, being impressed by its market share, community airdrop and distribution mechanism, and wealth effect. In addition, he mentioned Pump.fun------ the most successful Meme coin launch platform this year. Compared to existing platforms on the market, Pump.fun has successfully elevated the concept of 'Meme launch platform' to a top narrative, igniting a frenzy in the Meme market. Chris stated that the lesson 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 in the past, the understated success of these protocols is still very 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, has praised Pudgy Penguin, believing that it has single-handedly driven the revival of the entire NFT sector. As an early investor and Pudgy NFT holder, I fully experienced the powerful energy of Luca, who represents a new generation of entrepreneurs, and this has reinforced one of my fundamental principles: Invest in next generation.

Jsquare partner Dinghan stated that Ethena has performed remarkably in the DeFi sector 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 a certain fund ensures that even in cases of negative funding rates, USDE can maintain stable returns, further solidifying its long-term viability.

How will the market trend 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 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, Chris, the co-founder of Web3Port, 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 can reach next year, Allen, a research analyst at Ryze Labs, shares a similar viewpoint. He mainly uses the technical indicators Pi Cycle and 2Y MA Multiplier to determine the peak. He noted that historically, the times when these two indicators resonated were: December 5, 2013, December 16, 2017, and the most recent occurrence of the Pi Cycle top signal on April 12, 2021. According to historical data, these indicators have significant reference value. Allen pointed out that based on the estimation from the 2Y MA Multiplier, the peak of Bitcoin may be around $200,000. Both of these signals have ready-made indicators on TradingView, which can set alerts to facilitate peak judgment and position reduction decisions.

Evan Lu, Investment Manager at Waterdrip Capital, stated that if we adopt a cautious perspective, I believe the next peak for Bitcoin could reach between $120,000 and $150,000, after which it may fluctuate between $100,000 and $150,000. Based on certain policy statements, assuming the market value of gold remains unchanged, as long as Bitcoin's market value does not surpass that of gold, Bitcoin can be considered a growth asset, with its price potentially reaching $600,000 each, but this process may take 5 to 10 years.

Evan stated that during the previous halving cycle, Bitcoin experienced a slow rise and reached its first peak in April 2021, increasing from about $9,000 to $65,000. During the period from April to July, Bitcoin's price saw a significant pullback due to certain events. However, the market then welcomed a second wave of increases, ultimately reaching the highest point of the previous cycle. If the price on the halving day of this cycle is used as a benchmark, it may mark 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 sideways consolidation, followed by the onset of a second wave of increases, during which the price could reach $120,000 to $150,000.

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

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

The series of controversies surrounding "VC coins" has been an important topic that cannot be ignored 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 a sufficiently compact scale can force VCs to delve into the early stages, truly supporting entrepreneurs who are in desperate need of assistance, thereby nurturing genuine "myths." In contrast, those large-scale VC funds often fall into the trap of expanding management scales, participating in later rounds, and launching the market-criticized "VC coins." This practice is actually an old problem of Web2 VCs, and in recent years, Web3 VCs have also not been immune.

Will Wang believes that this situation will gradually be corrected. Whether it is technology or financial innovation, there will always be stages 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, the co-founder of Web3Port, pointed out that the essence of the competition between Meme and VC coins boils down to the competition of the market's existing 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 be sustained, leading to a significant decrease in 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, making them a "new type of weapon" for retail investors to counter the advantages of institutions.

However, the PVP attribute of Meme coins is essentially unsustainable, as most Meme coins, except for a few top Meme projects, find it difficult to have long-term value support. Chris stated that from the overall landscape of the encryption market, besides BTC and ETH, and a very few DeFi infrastructure projects with stable income sources, the tokens of most other projects are PVP, leading to competition among market participants where gains and losses originate from the same source. Regarding the existing predicament of VC coins, he believes there is currently no good solution in the short term. Against the backdrop of tight market liquidity and the increasing advantages of institutional investors, alleviating the issues with VC coins requires going through a complete bull-bear cycle, allowing the market to naturally clear and rebuild trust and fairness.

Evan Lu, an investment manager at Waterdrip Capital, believes that issuing tokens is not the end point, but rather the true starting point of a project's operation. Project teams should not approach their projects with the mindset that "funding equals profits, and issuing tokens equals delivering goods." Instead, they need to seriously consider whether they can truly implement 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 issuing tokens.

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

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

As the encryption market rises, new narratives such as AI and DeSci are driving the industry towards a new stage of development. After undergoing 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 expected to stand out and become the "stars of tomorrow" leading the industry? Many institutions have provided unique insights.

Will Wang, a partner at Generative Ventures, believes that many people do not fully understand the nature of RWA. He stated that RWA is essentially one thing: to enable blockchain to account for global mainstream financial assets. 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 is the major narrative for 2024, which has not yet been reflected in the token price. With the continuous launch of AVS, it may reach a climax in 2025; in addition, ZK-related projects will gradually showcase their market potential.

Allen, a research analyst at Ryze Labs, stated that AI Agents are expected to become the rising stars of the encryption industry. AI Agents have the ability to process vast amounts of market data, enabling them to make precise trading decisions in real-time, with a reaction speed far surpassing that of traditional human traders; in the DeFi sector, AI Agents can optimize borrowing rates and the pricing mechanisms of liquidity pools, significantly improving the efficiency of capital utilization; furthermore, it opens up new possibilities for the intelligent management of crypto assets, redefining the boundaries of asset management.

In this topic, the PayFi track has been mentioned multiple times by various institutions, and it is undoubtedly the focus of market attention. With the popularity of cryptocurrencies, ecosystems that can achieve seamless and low-cost payments are entering a rapid development phase. Jsquare partner Dinghan predicts that projects that bridge traditional finance and cryptocurrencies 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.