• JPMorgan predicts crypto venture funding will rebound in 2024, driven by regulatory clarity and policies under the Trump administration.
  • Challenges such as rising interest rates, ETF growth, and TradFi competition could limit the recovery of crypto VC funding, the report notes.

Crypto venture capital funding is expected to rebound this year, driven by improved regulatory clarity and crypto-friendly policies under the administration of President Donald Trump, according to a research report by JPMorgan.

The Wall Street bank highlighted that venture funding in the crypto sector has been subdued in recent years, partly due to regulatory uncertainty and enforcement actions by the U.S. Securities and Exchange Commission (SEC) during the previous administration.

Analysts, led by Nikolaos Panigirtzoglou, noted that emerging regulations, such as the European Union's Markets in Crypto Assets (MiCA) framework, which came into effect in December, could further encourage VC activity.

However, JPMorgan cautioned that funding levels are unlikely to return to the peaks of 2021-2022, citing several challenges faced by crypto-focused VC firms. Traditional finance giants like BlackRock and Franklin Templeton are increasing their involvement in the crypto market, reducing market share for VC firms in areas such as stablecoins, decentralized finance (DeFi), and tokenization.

Additionally, the report noted a shift in funding preferences among nascent crypto projects, which are increasingly bypassing large token sales to VC firms in favor of community-driven fundraising platforms. High interest rates and the growth of cryptocurrency exchange-traded funds (ETFs) have also contributed to a trend toward passive investing, diverting capital away from venture funding.

"The rise of ETFs is inducing a trend towards passive investing, further challenging the VC space," the report stated.

While regulatory clarity may spur some recovery, the report emphasized that the evolving market dynamics and competition from institutional players may limit the extent of the rebound in crypto VC funding.

Edited by Harshajit Sarmah