Translation: Baihua Blockchain

A few days ago, I attended an LP (Limited Partner) dinner, where the funds represented amounted to 15 billion USD. The hottest topic of the evening was the sudden shift of capital from cryptocurrency to frontier technology. Everyone was trying to understand the reasons behind this, whether the crypto industry still holds investment value, and some were taken aback by the rapid transformation of leading players in the industry.

Here are some key takeaways from the discussion, along with my personal reflections.

Historically, top talents have always gravitated towards emerging industries. Think of the typical founders described by Chris Dixon who work on R&D during "nights and weekends" — they are willing to take on 10x career risk to explore the unknown. It is such founders who create entirely new markets, which are often where the highest investment returns are born.

The cryptocurrency industry is no exception. Over the past decade, we have witnessed thousands of experiments, and those projects that found PMF (Product-Market Fit) have each carved out their own market. However, the landscape of opportunities has changed. Now, most of the energy in the on-chain industry is increasingly focused on Wall Street, traditional finance (TradFi), payment, and fintech. These are huge markets with substantial TAM (Total Addressable Market), but compared to the grand visions of cryptocurrency in 2020/2021, today's tracks appear more vertical and focused.

We must also remember that much of the growth in cryptocurrency occurred during the Zero Interest Rate Policy (ZIRP) era. At that time, every new public chain, new token, and new narrative gave us the illusion that we had fully grasped the future direction. As token prices skyrocketed, we naturally believed that the investment logic was being realized. But it turned out that things did not unfold entirely along that script.

Meanwhile, several emerging industries are gaining momentum — AI, robotics, and physical AI. Keen early capturers like Alex Atallah foresaw this shift early on and decisively pivoted to AI, a decision that has proven to be entirely correct.

If we regard the 2020s as the “decade of frontier technology,” it has undoubtedly been ushered in by cryptocurrency, followed by AI, robotics, and physical AI, and by the end of this decade, biotechnology and materials science are likely to gain more attention. Ultimately, all these industries will intertwine in some form.

Interestingly, we are witnessing history repeat itself. Pure AI research groups, AI white paper study groups, and robotics white paper study groups are emerging, with founders exploring these soon-to-explode tracks during nights and weekends. If you remember, we saw the same scene in the early days of cryptocurrency. In my view, the lesson learned from the early days of crypto is that all the sharp talents are attracted to this field precisely because it is fresh and exciting. And what I see now is that multiple new tracks are simultaneously exploding, and I believe they will eventually trend towards integration in the future.

Cryptocurrency currently faces multiple challenges: competing for talent density with emerging tracks, recovering from the bubble of the zero interest rate era (ZIRP), stripping away the broad Web3 grand narrative to focus more on Wall Street and fintech, and dealing with the impact of new technologies such as AI or quantum computing.

We have also seen a similar phenomenon in the AI field: large traditional giants easily leverage existing distribution channels to adopt stablecoins and other on-chain infrastructures, making it harder for startups to compete with them. Therefore, we see many startups being acquired, merged, or pivoting to other fields — which may seem like a bearish signal on the surface but is actually a healthy industry reshuffling.

So, what is the most crucial question now? Where are the opportunities?

One LP naturally asked: “Do we still need dedicated crypto VCs?”

After some back-and-forth debate, the prevailing consensus was: Yes, but it may not be for long. Before cryptocurrency fully integrates into the broader frontier technology market, we likely have one to two cycles left.

Some may hold a pessimistic view on this, but I consider it extremely positive. This signifies that cryptocurrency as an industry is maturing, and the broader tech market has essentially validated much of what we have been building. Many pure fintech companies, pure AI companies, and new founders still need deep crypto expertise, and this expertise is mostly concentrated among crypto-native talents and crypto VCs. I also believe we are on the cusp of another significant transformation.

Cryptocurrency was one of the earliest tracks in the frontier tech landscape but then fell into a period of stagnation. Subsequently, it found new opportunities for fintech through stablecoins, asset tokenization, and on-chain infrastructure. Now, with the maturation of AI, we are beginning to see leading AI companies adopting crypto infrastructure through agentic payments, wallets, and agentic trading.

We may not have yet uncovered new opportunities in this field, as too many frontier technology tracks have yet to surface fully, and each track could become an invisible catalyst for the next wave of cryptocurrency adoption.

I also think we underestimated the extent to which the future growth of cryptocurrency will come from those immature areas. We have not yet seen DeFi or agentic brokerages reaching millions of users, nor have we seen tokenized stocks penetrating into emerging markets.

I have often said that if a typical new technology paradigm requires about 30 years to mature, I would divide it into three stages: the first 1/3 stage yields the highest returns, the middle 1/3 stage earns the most absolute profits, and the final 1/3 stage sees the industry consolidating around the winners. I believe we are currently in the second stage of this shift.

So, why are large crypto VCs suddenly making a big move into frontier technology?

Beyond all the aforementioned reasons, from a fund perspective, the answer is quite straightforward. Today, the range of opportunities in cryptocurrency is narrower than we imagined back in 2020. You cannot effectively deploy 1 billion to 3 billion USD entirely into the pure crypto space today and expect to achieve the same returns.

From a fund mathematical logic perspective, a 2 billion USD fund aiming for a 3x return needs to return 6 billion USD, which means you need to invest in multiple successful projects valued between 10 billion to 50 billion USD with a considerable ownership stake for the math to add up.

Historically, one of the few categories capable of supporting this scale of investment logic is Layer 1 public chains and other infrastructure projects. However, as the industry matures, more and more value flows to applications or existing giants that have distribution channels, making it harder for those solely focused on cryptocurrencies to justify such super-sized funds anymore.

Thus, it makes complete sense for these institutions to extend their reach into robotics, physical AI, computing power, and other frontier technologies. They need a broader landscape of opportunities to deploy capital and create venture-level returns. In these areas, they can achieve significant ownership stakes, and the current increase in valuations in venture rounds also offers a tangible IPO path — just look at some of the AI and robotics companies today.

So, what about domain-specific VCs? They will continue to maintain unique advantages, just like fintech VCs or vertical VCs in other industries, but over time, the market simply will not need so many in numbers. We are now just clearing out the excess capacity left from previous cycles, with the surviving institutions either doubling down on their original focus areas or broadening their vision to include frontier technology.

Additionally, there is the talent issue.

We are indeed feeling the migration of young tech talents to AI and robotics. Historically, this group of talents would have gone on to study Dan Boneh's cryptography white papers and then dedicated themselves to building foundational protocols, but now this talent is flowing elsewhere. However, this does not mean we are experiencing a "brain drain." According to data from Alliance, we see that a significant number of experienced talents in the current crypto industry are leaving big companies to independently start their own ventures, and this proportion is even higher than that of young talents.

So, what does all this ultimately mean?

Cryptocurrency and the on-chain ecosystem will always exist as an independent industry, but it is becoming more focused on finance, payments, and financial infrastructure. These products are still a long way from true maturity and reaching billions of people, and we are far from that stage today. What I found most interesting at this dinner was that the LPs were not bearish on cryptocurrency. On the contrary, they are excited about the "growing up" of cryptocurrency — watching it intertwine with emerging tracks, thereby bringing new opportunities and are actually doubling down on those institutions with long-term visions in the crypto field.

Article link: https://www.hellobtc.com/kp/du/11/6500.html

Source: https://x.com/lmrankhan/status/2121307248811245800