PitchBook analyst Robert Lu expects crypto venture capital funding to be “much stronger” in 2025 than in 2024.

“We will see $18 billion or more in venture capital dollars that will be invested in cryptocurrencies,” Lu told CNBC's Jordan Smith. This is a 50% increase from 2024, but is still less than the approximately $30 billion “invested in 2021 and 2022,” he added.

2023 and 2024 summary

Lu described 2023 as a challenging year for cryptocurrency finance due to the collapse of FTX, eroding confidence and rising interest rates.

However, 2024 started strong with positive momentum driven by the approval of Bitcoin exchange-traded funds, or ETFs.

Despite the mid-year slowdown, "we're likely to end (2024) at $11 (billion) to $12 billion in invested capital, which is still 10 to 20% more than in 2023," he said.

Funding forecast for 2025

Le's forecast of $18 billion or more in crypto venture capital funding represents a 50% increase over 2024. He says there are several factors that bode well for the sector. They include:

• Public investors are regaining interest, indicating broad potential investment.
• The original crypto funds have a large dry powder but require public participation to achieve significant growth.
• Financial institutions will play a pivotal role by leveraging their trusted relationships with regulators.

Shift focus

Lu expects a shift in focus towards investments in the application layer, moving beyond infrastructure projects. Examples include:

• Decentralized applications (dApps) target non-crypto users with better risk management.
• Use cases that leverage cryptocurrency infrastructure for non-crypto sectors such as mobility and energy data.

Lu says that the analogy of AWS as a base for companies like Uber and Airbnb highlights the need for robust applications on top of cryptocurrency infrastructure to realize its full potential.

benefit "nothing"

Lu stressed the importance of regulatory clarity for the growth of the cryptocurrency industry. He expressed cautious optimism about the US regulatory environment in 2025, noting:

• A shift in SEC leadership under the incoming Trump administration may lead to fewer enforcement actions.
• Legislative progress, such as stablecoin bills or rules for cryptocurrencies, would be helpful but not guaranteed.
• Even the lack of new regulatory measures could be an improvement over the past two years of uncertainty.

Lu concluded that a stable regulatory environment, coupled with increasing institutional participation and application-focused investments, could pave the way for significant developments in the cryptocurrency sector in 2025.

But even if the next presidential administration and incoming lawmakers "don't do anything," Law says, "this is already an improvement."

For the full interview, see below.