Author: BitalkNews
After the bull market in 2021, the crypto industry entered a period of continuous pain, and almost everyone feels a bit disappointed with crypto.
20 million tokens failed and went to zero, many once-popular projects announced their closure, and numerous retail investors faced significant asset depreciation.
The players in crypto gaming are also changing. In 2017, a few developers could launch a project within days with just a white paper, and the capital threshold was nearly zero.
Now, in 2026, the core players in the crypto track are almost all focused on playing expensive compliant games. After the regulatory clarity, the bottom line for legal operations has actually been raised.
A crypto company looking to operate compliantly in the US can expect to spend between $750,000 to $1.2 million for the first three years, and once scaled, the annual compliance costs exceed $2 million. Obtaining a BitLicense in New York typically takes over a year. The EU's MiCA requires a minimum capital of €50,000 to €150,000. The costs for compliance personnel and ongoing reporting obligations continue to burn cash.
The barrier to entry for crypto entrepreneurship is now no different from that of traditional finance. For retail investors, crypto also no longer offers enticing returns, and many who entered at high points are left with substantial losses.
Opportunities for early-stage crypto entrepreneurship have nearly disappeared
In 2025, global VC investment in crypto reached around $20 billion, but early-stage entrepreneurs can hardly access funds.
In the first quarter of 2026, seed and pre-seed rounds accounted for only 5.2% of total financing, with seed rounds all but disappearing, and established large companies capturing 57% of the funding.
Dragonfly managing partner Hadick described the current state of the industry with a short phrase during the closure of a new $650 million fund: mass 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 but will focus on stablecoin payments, RWA tokenization, prediction markets, and on-chain lending.
From its initial $300 million fund investing in protocol layer innovations in 2018 to the fifth fund in 2026 focusing on payments and tokenization, large VCs have closed the pathways for financing crypto early-stage projects.
Moreover, the top-tier crypto VCs have begun to funnel money into AI. Paradigm, a top crypto fund managing $12.6 billion, announced a new $1.5 billion fund in February 2026, but the investment scope has expanded to AI and robotics. According to SVB statistics, for every $1 invested by VC in the crypto industry in 2025, 40 cents simultaneously flowed to companies also involved in AI, a sharp increase from 18 cents in 2024.
Big players are playing compliance
According to crypto mergers and acquisitions consulting firm Architect Partners, the total M&A volume in the crypto industry reached $37 billion in 2025, with 356 transactions, more than seven times year-on-year growth.
However, almost all mergers and acquisitions point to the same logic: buy licenses, not technology.
Coinbase spent $2.9 billion to acquire Deribit for its derivatives license. Kraken spent $1.5 billion to acquire NinjaTrader for its futures license and clients. Ripple acquired Hidden Road for $1.25 billion to buy distribution channels for institutional finance.
In 2026, traditional financial giants began to get personally involved. Mastercard acquired crypto payment company BVNK for $1.8 billion; this is no longer just integration among crypto companies, but traditional finance directly buying crypto capabilities. The latecomers are not chasing after technological capabilities, but rather trying to save time on compliance costs, which can be replaced with money.
Crypto is now a game of three types of players.
- The first type is licensed companies like Coinbase, Kraken, and Ripple that widen their moats through mergers and acquisitions.
- The second type is top-tier VCs like a16z and Dragonfly, whose funds are concentrated in proven directions like stablecoin infrastructure, RWA tokenization, and AI services, while early experimental projects can barely get any investment.
- The third type consists of traditional financial institutions that enter the field with licenses and capital; BlackRock is issuing tokenized funds on Ethereum, Franklin Templeton is engaging in on-chain treasury bonds, and Stripe is working on stablecoin payments.
In March 2026, the parent company of the New York Stock Exchange, ICE, invested in OKX at a $25 billion valuation and secured a board seat, enabling OKX users to trade tokenized stocks of the exchange in the future. Traditional finance not only conducts its own crypto operations but also invests directly in crypto exchanges.
There is another type of winner that is easily overlooked: 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 helps crypto companies with identity verification and transaction risk control, raising $145 million cumulatively.
The same logic applies to the tokenization of US stocks; companies like Backed Finance, Ondo Finance, and Dinari—holding traditional financial licenses—provide underlying issuance and custody services, and Kraken has directly acquired Backed Finance. When SpaceX went public in June 2026, Binance, Bybit, Bitget, and MEXC all promised users tokenized shares at IPO prices, but none secured underwriting allocations and failed to deliver. What could be delivered were Backpack, holding a securities license, and Ondo and Dinari, which initially stated their shares were priced at secondary market prices.
The stricter the regulation and the higher the barriers, the more profit these shovel sellers make.
When the crypto industry becomes a traditional industry
The wealth effect of early crypto was built on three conditions: almost no barrier to entry, retail and institutional investors had roughly equal information, and significant asset price discrepancies from reasonable values. In 2017, investing $10,000 for several times return was common. These three conditions have been rapidly eroding between 2024 and 2026.
In January 2024, the approval of Bitcoin ETFs officially integrated Bitcoin into the dollar-denominated system, turning it into a financial asset bought and sold in dollars and measured in dollars. Bitcoin's performance in the past two years has become increasingly similar to that of growth tech stocks, alongside the gradual clearing of the crypto bubble; retail investors' return expectations in crypto have also been declining year by year.
For entrepreneurs, the situation is more complicated.
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 creates infrastructure for token issuance and has already minted over 18.67 million tokens since its launch. The Telegram trading bot Trojan has accumulated trading volumes in the hundred billion range.
They are among the few cases in the crypto-native field where coding alone can lead to significant growth, yet their success highlights a problem: they are not true innovators of the industry; instead, they provide more efficient channels for others' speculative behaviors.
However, the window for such tool-layer opportunities is also narrowing.
The remaining directions capable of attracting top-tier VC funding are highly concentrated.
The investment focuses of a16z, Paradigm, Dragonfly, and Coinbase Ventures have converged: 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, cyclical, and provide linear returns. VCs are now almost no longer looking at protocol innovation, but rather at the adoption pathways of institutional clients and compliance moats.
The window for protocol layer innovation has basically closed. The L1 landscape is dominated by Ethereum, Solana, and a few others, with almost no opportunities for new public chains. Innovation is migrating to the applications layer and compliance infrastructure layer, but the pace of this type of innovation is completely different from the speed of creating a new market with a simple smart contract like in 2017. Teams now need both traditional financial backgrounds and crypto technology backgrounds, must first obtain licenses or bind themselves to licensed institutions, and have to spend several million dollars before launching their first product.
When the entry barriers are as high as traditional finance, when the winners are the companies securing licenses and banking relationships instead of the teams with the best technology, and when mergers and acquisitions replace open-source competition as the primary means of market integration, the value distribution logic of this industry has no essential difference from that of traditional finance.
When the opportunity structure of crypto becomes similar to that of traditional finance, what is the next step?
Every time crypto goes through a period of confusion, it is followed by a wave of excitement.
For the entrepreneurs and retail investors still in this industry, they either embrace the current changes or explore the next field of randomness within crypto.
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