Crypto venture capital (VC) funding is expected to recover this year as regulatory clarity and friendlier policies emerge during Donald Trump’s term, JPMorgan (JPM) said in a research report Wednesday.
The Wall Street Bank noted that the industry’s corporate funding has been subdued in recent years. This may be due to enforcement actions by the US Securities and Exchange Commission (SEC) and the climate of regulatory uncertainty during the previous administration, wrote analysts led by Nikolaos Panigirtzoglou.
The start of EU Markets in Crypto Assets (MICA) regulations, which came into force at the end of December, are expected to “further strengthen CV engagement,” according to the report.
Still, the level of funding is unlikely to match previous peaks seen in 2021/22, JPMorgan said, as crypto venture capital firms face a number of challenges.
Traditional finance (TRADFI) giants such as Blackrock (BLK) and Franklin Templeton are increasing their participation in the crypto market, leaving less market share for venture capital firms in stablecoins, tokenization and decentralized finance (DEFI), the bank said.
Nascent crypto projects are avoiding large token sales to VCs and are increasingly turning to community-focused platforms to raise funds, the report noted.
High interest rates also present a challenge for VC financing, JPMorgan said.
The growth of cryptocurrency exchange-traded fund (ETF) products is “driving a trend toward passive investing,” and this could divert capital away from venture capital firms, the report added.
Read more: Crypto venture capital market remained challenging in 2024, says Galaxy Digital
