After years of regulatory overreach, economic pressure and the transition of innovation to other parts of the world, the digital asset market looks set for a significant evolution as we enter 2025. Unlike the post-COVID hyper-FOMO cycle of 2021, we are entering a more mature era – fueled by increased construction and infrastructure investment coinciding with expectations of regulatory clarity and accompanying headwinds of the tail.
While digital assets have always been cyclical, there are reasons to believe this time is different. The foundational pieces are finally being put in place for the next phase of adoption, growth and institutional participation. As we enter 2025, Hack VC is predicting the following:
1. DeFi will be rekindled by a favorable regulatory landscape
The 2024 US presidential election provided a tangible tipping point for crypto regulation and a necessary reassessment of Web3 as a broad category. Gary Gensler will soon be replaced as SEC chairman, and his replacement is expected to be particularly pro-innovation and backed “crypto-mom” Paul Atkins.
It is important to note that many of the most interesting DeFi innovations of the past two years remain blocked to US-based participants. Additionally, there has been no clarity on what a protocol must do to open access to US participants. SEC Commissioner and former Trump appointee Hester Peirce has been particularly vocal about the dangers of Gensler's 'regulation by enforcement' practices, the need for more decentralization in financial markets, and the dangers of extraordinary proposed legislation that it would treat decentralized entities and node operators as regulated financial institutions. In addition to this legislation being completely dead, we anticipate that leaders like Atkins and Peirce will promote an environment characterized by regulatory transparency rather than one where operators must look over their shoulders for SEC-initiated lawsuits. Under this new leadership, we also have the potential to see the introduction of a safe harbor proposal that Commissioner Peirce has championed in the past. These safe harbors would allow a platform to start as a funded entity, transitioning to a more decentralized protocol over time.
This market opening can unlock significant capital inflows to established DeFi platforms as well as new projects that have been isolated in more advanced innovation regimes. Increased participation and liquidity will invariably lead to ever-greater improvement in fundamentals. Regardless of how pronounced this growth is in the near term, the reality is that US-based investors have seen their access to potential DeFi applications limited over the past two years, and our expectation is that we will not encounter more user experiences shown in the following screenshot.
Adding fuel to the fire, US monetary policy can also play a supportive role in the attractiveness of DeFI lending, equity and repo. If interest rates continue to ease along the short end of the yield curve, opportunities to generate equity returns will flow naturally to DeFi protocols, offering real dollar-denominated rates of return that are unavailable through traditional financial markets.
2. Private markets will be driven by infrastructure; Liquidity markets will experience downside volatility
While the evidence shows that the crypto market is accelerating, we see few parallels to the hype-fueled mania of 2021. Instead, we will witness a period of more deliberate and sustained growth with similar early-stage investment opportunities. with those of the mid-1990s. At Hack VC, we envision a steady rally underpinned by real, transformative Web3 infrastructure developments and early applications leveraging these new technology paradigms.
While any assessment based on technological innovation will involve growth assumptions, we think we are entering a period that will be driven by productive capital as opposed to more speculative financial capital. Builders who have spent the last few years laying the groundwork for a Web3 future will finally see their efforts materialize. From decentralized storage networks to new blockchain interoperability solutions, 2025 will be the year that the Web3 infrastructure layer begins to take shape. More specifically, we are focused on future opportunities in modular infrastructure, financial infrastructure and AI infrastructure.
Meanwhile, the growing convergence of crypto and artificial intelligence will continue to be one of the most compelling stories of the year. Just as mobile and cloud computing defined the technology growth market in the last 15+ years, blockchain and AI will drive new paradigms for how data, computation and incentives are organized in the digital economy. This period will later be considered the true beginning of a Web3 and AI revolution where future ubiquitous business models will be established.
While Hack VC has historically found success by allocating capital counter-cyclically, we expect the market to catch up to our thesis eventually. We anticipate that Web3 venture funding will approach the highs of the fourth quarter of 2021 and early 2022 and significantly exceed those levels in the years ahead. In 2025, this is simply a function of market growth from a low base, not hype or hype. As with all major technology changes, the Web3 transition will take time. We believe we will first experience integrations of Web3 use cases into Web2 business models in order to natively serve that user base.
Ultimately, long-term success will be realized when participation in a Web3 world will be indistinguishable to the average person. Yes, there will be increases in the usefulness and effectiveness of applications, but the technology by which these advances are delivered to the consumer has been, and will continue to be, cases of TMI – it just has to work.
3. More opportunities for founders and investors in a more rational market
The crypto market will usher in a wave of new founders, fueling an increase in deal flow for early-stage venture capital investors. While competition for the most promising deals will always be inevitable, the hard-earned lessons from the last crypto winter will remain top of mind for entrepreneurs and investors alike. While valuations typically expand in bull markets, we expect this expansion to be healthy and sustainable as a result of the market dynamics discussed earlier. As a result, the landscape will present a particularly compelling environment for early-stage investment, where innovation and infrastructure expansion present the most attractive opportunities.
The best and most experienced venture investors will take an active role in structuring deals in order to support the long-term success of the projects and ecosystems they support. This shift reflects a growing understanding that sustainable growth—rather than short-term hype—is the key to maximizing value creation in crypto. Agreements will increasingly include mechanisms to stabilize the token economy, align incentives and foster robust communities, ensuring that founders and investors can thrive in a more prudent and rational marketplace. This is a topic that HackVC has a strong opinion on and that we do discussed at length in the past.
On the liquid investment side, we can expect continued ETF-oriented inflows into marquee assets such as Bitcoin, Ethereum and Solana. The introduction and normalization of crypto ETFs has widened access to digital assets for traditional investors, spurring institutional and retail inflows. However, this growth will also create further distribution in the market. Core assets with strong fundamentals and access to ETFs are likely to see more sustained interest. Meanwhile, arguments with imminent supply unlocks and/or extreme valuations may face downward pressure as market participants weigh these dynamics more critically.
These trends are also likely to affect overall market volatility. The fact that segments of the institutional markets now have a vehicle in which they can access BTC and ETH should serve to mitigate much of the retail-driven reactionary volatility we've experienced in previous cycles. The market has matured significantly and participants have expected sharp reactions to supply unlocks or speculative excesses. This increased awareness, coupled with improved liquidity and more sophisticated hedging strategies, will lead to a more balanced market environment.
Conclusion: A transformative year ahead
As we stand at the beginning of 2025, the digital asset market is poised for a period of meaningful transformation. The combination of favorable regulatory changes, deliberate infrastructure building, and maturing market dynamics signal that the crypto industry is entering its most promising chapter of sustained growth.
DeFi is set to unlock new opportunities for capital and user participation under a more innovation-friendly administration. Improved market sentiment will drive domestic innovation and investment in Web3 infrastructure driven by advances in modularity, financial systems and AI, laying the foundations for a new era of growth. At the same time, a more rational market environment will empower both founders and early-stage investors to focus on sustainable value rather than speculative excess.
2025 will be remembered as the year the crypto industry truly turned a corner—a year when fundamental investment, thoughtful regulation, and technological convergence began to shape the future of a decentralized and interconnected global economy. An economy that we at Hack VC are excited to play a part in building.
Peter Hans is a partner and global head of business development at Hack VC.