Author: Bibi News
After the bull market in 2021, the cryptocurrency industry entered a prolonged period of growing pains, and almost everyone felt a bit disappointed with cryptocurrencies.
20 million tokens have failed and gone to zero, many once-popular projects have declared closure, and numerous retail investors are facing significant asset depreciation.
The players in crypto gaming are also changing. In 2017, a few developers could launch a project within days just by having a white paper, with capital thresholds approaching zero.
Now in 2026, the core players in the crypto space are almost all focusing on playing expensive compliant games. After regulatory clarity, the baseline for legal operation is actually being raised.
A cryptocurrency company must comply to operate in the United States; it is estimated to spend $750,000 to $1.2 million for the first three years for compliance across multiple states, with annual compliance costs exceeding $2 million after scaling. Obtaining a BitLicense in New York typically takes more than a year. The EU's MiCA requires a minimum capital of €50,000 to €150,000. Compliance personnel expenses and ongoing reporting obligations continue to burn money.
The threshold for cryptocurrency entrepreneurship is now no different from traditional finance. And for retail investors, cryptocurrencies no longer offer attractive returns, even causing many who entered at high points to lose their shirts.
There is almost no opportunity for early stage crypto entrepreneurship
By 2025, global VC investment in cryptocurrency has recovered to around $20 billion, but early-stage entrepreneurs can hardly secure funding.
In the first quarter of 2026, seed and pre-seed rounds accounted for only 5.2% of total financing; seed rounds have nearly vanished, while already mature companies grabbed 57%.
Hadick, Managing Partner at Dragonfly, characterized the current industry state with a short phrase during the completion of a $650 million new fund: a large-scale extinction event.
a16z completed a $2.2 billion Crypto Fund 5 in May 2026. Chris Dixon, head of a16z crypto, clearly stated that this money will no longer be invested in early-stage protocols, with a focus on stablecoin payments, RWA tokenization, prediction markets, and on-chain lending.
From the first phase of a $300 million fund investing in protocol layer innovation in 2018 to the fifth phase investing in payments and tokenization in 2026, major VCs have closed the channel for funding early-stage crypto projects.
Moreover, top crypto VCs have begun directing funds towards AI. Paradigm, a top crypto fund managing $12.6 billion, announced a $1.5 billion new fund in February 2026, but its investment scope has expanded to AI and robotics. According to statistics from SVB, for every $1 invested in cryptocurrency by VC in 2025, $0.40 simultaneously flowed into companies also engaged in AI; in 2024, this ratio was only $0.18.
Big players are playing compliant games
According to crypto M&A consulting firm Architect Partners, the total amount of mergers and acquisitions in the crypto industry reached $37 billion in 2025, with 356 transactions, a year-on-year growth of over 7 times.
However, almost all mergers and acquisitions point to the same logic: buy licenses, not technology.
Coinbase spent $2.9 billion to acquire Deribit, buying a derivatives brand license. Kraken spent $1.5 billion to acquire NinjaTrader, buying futures licenses and customers. Ripple spent $1.25 billion to acquire Hidden Road, purchasing distribution channels for institutional finance.
In 2026, traditional financial giants began to enter the arena personally. Mastercard acquired crypto payment company BVNK for $1.8 billion; this is no longer an integration between crypto companies, but traditional finance directly buying back crypto capability. Latecomers are not chasing after technical capability but rather spending money to replace compliance costs associated with time.
Cryptocurrency is now a game for three types of players.
The first type includes licensed companies like Coinbase, Kraken, and Ripple that expand their moats through acquisitions.
The second type includes top VCs like a16z and Dragonfly, whose money is concentrated in proven directions such as stablecoin, RWA tokenization, and AI agents, while early experimental projects can hardly secure any investment.
The third type consists of traditional financial institutions entering the scene with licenses and capital, such as BlackRock issuing tokenized funds on Ethereum, Franklin Templeton working on on-chain national bonds, and Stripe focusing on stablecoin payments.
In March 2026, the parent company of the New York Stock Exchange, ICE, invested $25 billion in OKX and secured a board seat, resulting in OKX enabling users to trade tokenized stocks of the NYSE. Traditional finance is not only involved in crypto but is also directly investing in crypto exchanges.
Another type of winner that is easy to overlook is the companies selling infrastructure.
Chainalysis has raised $538 million by helping exchanges with on-chain anti-money laundering, generating $250 million in revenue in 2024. Sardine assists crypto companies with identity verification and transaction risk control, having raised $145 million.
In the tokenized US stock arena, the same logic applies. Companies like Backed Finance, Ondo Finance, and Dinari, which hold traditional financial licenses, provide underlying issuance and custody, while Kraken has directly acquired Backed Finance. When SpaceX went public in June 2026, Binance, Bybit, Bitget, and MEXC all promised users tokenized stocks at the IPO price, but none secured an allocation from the underwriters and were unable to deliver, whereas Backpack, which holds a brokerage license, could deliver, alongside Ondo and Dinari, which stated from the outset that they were priced at secondary market values.
As regulation tightens and thresholds rise, these shovel-selling companies are becoming more profitable.
When the cryptocurrency industry becomes a traditional industry
The wealth effect from early cryptocurrency was built on three conditions: nearly no entry threshold, retail and institutional investors having relatively similar information, and a significant deviation of asset prices from their rational values. Investing $10,000 in 2017 often yielded tenfold returns. These three conditions have rapidly broken down between 2024 and 2026.
In January 2024, the Bitcoin ETF was approved; Bitcoin was formally included in the dollar valuation system, becoming a financial asset traded in dollars and measured by dollars. Over the past two years, Bitcoin's performance has increasingly resembled that of growth-phase tech stocks, alongside the gradual clearing of the crypto bubble, with retail investors' expected return rates for cryptocurrencies declining year on year.
For entrepreneurs, the situation is more complex.
The high-leverage opportunities native to crypto have not completely disappeared, but their forms have fundamentally changed. Pump.fun does not issue tokens or run projects; it provides the infrastructure for token issuance and has minted over 18.67 million tokens since its launch. The Telegram trading bot Trojan has accumulated a trading volume in the hundreds of billions.
They are among the few cases in the native crypto field where simply writing code can lead to big growth, but their success itself highlights an issue: they are not true innovators in the industry but rather provide a more efficient channel for others' speculative activities.
However, the window for such tools is also narrowing.
The remaining entrepreneurial directions capable of attracting top VC funding are highly concentrated.
The investment focuses of a16z, Paradigm, Dragonfly, and Coinbase Ventures have begun to converge: stablecoin payment infrastructure, RWA tokenization, on-chain execution layers for AI agents, institutional-grade DeFi tools, and compliance technology.
These five directions share a common characteristic: they are all capital-intensive, license-intensive, have long cycles, and linear returns. Venture capitalists are now nearly ignoring protocol innovations, focusing instead on the adoption path by institutional clients and compliance moats.
The window for innovation at the protocol layer has essentially closed. The L1 landscape is dominated by Ethereum and Solana with very few others, leaving almost no opportunities for new public chains. Innovation is migrating to the application layer and compliance infrastructure layer, but such innovation is entirely different in speed from the time in 2017 when simply writing a smart contract could create a new market. Teams now need backgrounds in both traditional finance and crypto technology, must obtain licenses or bind to licensed institutions, and need to spend millions of dollars before launching their first product.
When the entry barriers are as high as those in traditional finance, and the winners are those who secure licenses and relationships with banks rather than the best technical teams, and when mergers and acquisitions replace open-source competition as the primary means of market consolidation, then the value distribution logic of this industry is essentially no different from traditional finance.
When the opportunity structure of cryptocurrency becomes similar to traditional finance, what is the next step?
Each time cryptocurrency goes through a period of confusion, it is followed by a wave of excitement.
For those entrepreneurs and retail investors still in this industry, they must either embrace the current changes or explore the next highly uncertain domain in crypto.
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