Institutional capital enters the market, countdown to the crypto market breakout has begun
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Institutional capital enters the market, countdown to the crypto market breakout has begun
Although the trend of capital inflow has become quite clear, the entire process will still take time.
Navigating Web3 tides with focused insightsAuthor: Regan Bozman
Translation: TechFlow
In the past few days, I've spoken with several family offices, endowments, and capital allocators who are interested in cryptocurrency.
Market sentiment is extremely positive! Bitcoin (BTC) is nearing $100,000, while we've been questioned for the past two years.
Below are some observations and thoughts on the gradual opening of private markets:
While the trend of capital inflows is clear, the process still takes time.
Assume most institutional capital decision-makers are used to reading the New York Times (NYT), not following Polymarket.
They priced Trump’s odds of winning at around 50%, and adjusted their portfolios accordingly.
If we assume investors prioritize core assets within their portfolios, they still have a lot of work to do—adjusting fixed income, energy equities, ESG-related allocations, and more.
Opportunistic assets like crypto—or a 1–3% crypto exposure in an existing portfolio—are not a priority for Q1.
Therefore, I remain optimistic about long-term trends, but expect short-term volatility. There could be a pullback by year-end or early Q1, possibly accompanied by tax-related selling.
Yet, as with the train station scene in *Yellowstone*, the direction of this train is irreversible.
Prior to the election, fundraising for most crypto funds was extremely difficult. Key reasons included:
Challenges in venture capital (primarily lack of distribution returns)
Bottlenecks in the crypto industry (lack of compelling narratives, low market interest, and concerns over market structure)
Distraction from emerging hot areas (such as the rise of generative AI)
Most limited partners (LPs) categorize crypto investments under venture capital. To fulfill new VC commitments, they need distributions from existing VC investments.
This wasn't an issue in 2021 and 2022, when numerous IPOs delivered strong returns to LPs.
But today, liquidity in venture capital is severely constrained. The IPO and M&A markets are weak, and overall VC returns have been poor, leading many LPs to reduce new VC commitments.
Most LPs only began investing in crypto funds in 2021, and these funds have yet to generate any cash distributions.
In my view, this isn’t a fundamental structural problem—the current lock-up is simply due to timing—but regardless, most LPs haven’t seen returns from crypto VC investments yet.
Of course, this isn’t universal—some LPs don’t classify crypto within their VC portfolios.
Others prefer more liquid funds (which I believe is healthy for the industry).
Still, for the majority of capital allocators, these remain visible structural challenges (and while Bitcoin hitting $100K may help, it won’t fully resolve them).
Beyond that, the crypto space faces specific headwinds:
Lack of a clear, unified narrative
Low overall market interest (few new LPs entered crypto in the past two years)
Concerns over token market structure
These issues are more subjective than fundamentally structural.
Certainly, Bitcoin reaching $100,000 would significantly ease skepticism toward the space.
Imagine hearing someone brag about their crypto portfolio gains on the golf course—you’d feel the urge to participate too.
But based on my experience, most LPs aren’t truly paying attention to crypto right now.
While FOMO ("fear of missing out") is real, many capital allocators go through complex committee-driven processes, so turning FOMO into actual investment decisions typically takes at least 1–2 quarters.
One major reason for LPs’ lack of interest in crypto is that AI has captured so much allocator attention.
Many still question crypto’s real-world applications, but after personally experiencing ChatGPT, one immediately recognizes AI’s transformative potential—it feels like it can change everything.
I think debating crypto use cases now seems outdated.
AI is clearly in a bubble phase, and this bubble may badly hurt many VC funds.
But I understand why—ChatGPT offers an intuitive, instantly graspable experience, whereas crypto concepts feel more abstract. Combined with AI’s theoretical total addressable market (TAM), which seems nearly limitless, expectations run high.
Yet, these are temporary concerns—things may shift faster than we imagine. In the coming weeks, we could see two monumental developments simultaneously: the most favorable political environment in crypto’s history, and Bitcoin breaking $100,000.
This will be a game-changer.
For the past decade, regulatory uncertainty has been the most common excuse to dismiss the crypto industry. That excuse will become far less tenable going forward.
This shift will trigger many positive ripple effects—better token design, broader institutional participation, and more entrepreneurs entering the space.
Like all technologies, AI will inevitably enter a trough of disillusionment. Engineers working at AI startups valued at $2 billion with no profits may reconsider their options once the AI VC market corrects.
They’ll discover that crypto offers broader opportunities—and a more interesting culture.
In fact, I’ve already noticed a gradual recovery in crypto fundraising.
Capital allocators are naturally conservative—no one gets fired for giving money to traditional firms like Bridgewater charging “2 and 20” (2% management fee, 20% performance cut).
But when your peers are all talking about something, ignoring it becomes nearly impossible. Crypto has powerful reflexivity:
Rising prices attract more attention;
Rising prices enable more distributions from existing crypto VC funds;
Rising prices also draw more entrepreneurs into the space.
Of course, there’s still much work to do—a classic objection remains: “Investing at high prices means you’ve already missed the opportunity.”
If we don’t support ambitious crypto companies and tell compelling stories about their use cases, such concerns could hinder capital inflows.
Whether full market breakout happens in Q2, Q3, or Q4 no longer matters. The macro backdrop is finally aligned.
Let’s go all in and build!
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@reganbozman
