There are concerns about an impending recession in the United States, with JP Morgan raising its probability to 40 percent, up from 30 percent at the beginning of the year, and Goldman Sachs raising the probability to 20 percent. The “Trump bump” has waned with the U.S. stock markets down since the start of 2025, with the tech-heavy Nasdaq leading the sell off down nearly 8 percent.
Following “liberation day” where President Trump announced new tariffs on U.S. imports, a new era of trade competition has many economists predicting a rise in U.S. inflation. In an interview last month, the President, shared a different perspective, saying the US economy was going through “a period of transition.”
The US Treasury Secretary Scott Bessent has called the market drop a “healthy correction.”
Similarly, Kevin Hassett, head of the National Economic Council, said, “There are a lot of reasons to be extremely bullish about the economy going forward. But for sure, this quarter, there are some blips in the data.”
Crypto markets, which are highly correlated to tech stocks, have shed over $1 trillion in the past weeks. Crypto veterans know volatility is a fundamental aspect of market dynamics.
During transient market conditions, experienced crypto allocators and developers return to the trenches and focus on driving crypto innovation. Extended periods of market volatility often present opportunities for investing in and building new and better crypto products.
Building Useful And Safe Products For Retail Investors
The crypto economy beyond BTC and ETH can often lack a solid grounding as liquidity circulates from one narrative to another. Instead of generating revenue from businesses with strong fundamentals, shifting capital reserves can often obstruct the industry’s sustainable growth.
The memecoin market has shrunk by over 57 percent, from $125 billion in December 2024 to $53 billion in March 2025. Investors’ primary activity has been rotating capital allocation as $485 million flowed out of Solana to Ethereum, Arbitrum, and BNB Chain in February 2025.
Byron Gilliam, market strategist and uber-industry pundit at Blockworks says, “Memecoins are not stocks, of course, they’re lottery tickets — some of which do pay off.”
Gilliam highlights the memecoin launchpad pump.fun has generated $600 million of revenue in its short 14-month existence and users don’t have much to show for it: Of the 8.7 million tokens launched, only four now have market caps above $100 million.
The memecoin market is driven mainly by retail investors.
The Dow Investing Versus Gambling chart lays out the continuum of expected returns to uncertainty that most serious financial professionals involved in allocating capital to and developing the crypto and digital asset ecosystem are at pains to point this out.
Lotteries are the last stop on the uncertainty axis, following casino gambling. There is a strong argument that memecoins are not cryptoassets, per se.
Roshan Dharia, CEO of Echo Base, a crypto holding company, has elaborated on the retail investor’s plight within the crypto domain saying, “No doubt Memecoins have been instrumental in onboarding the crypto-curious, however, to build a sustainable financial market, the crypto industry must stay focused on building products with real economic utility that solve real world problems.
“Memecoins make for great press, but traditional financial institutions are focused on how crypto creates efficiency and transparency in a way that unlocks new value. That value has long been inaccessible but on blockchain rails… everything changes.”
Utility is an important aspect of attracting people to crypto and creating new revenue channels for on-chain companies.
The other important aspect is ensuring safety for retail investors, especially after the $1.4 billion Bybit hack.
According to a CertiK report, there were 760 security breaches with $2.36 billion lost in 2024, a sharp 31 percent year-on-year (YoY) rise. These vulnerabilities expose the risk of investors within the crypto industry and the need to build highly secure crypto products.
CertiK co-founder and ceo, Professor Ronghui Gu commented, “Hackers are using increasingly sophisticated techniques, and it is now more important than ever for blockchain businesses and projects to proactively invest in robust security measures. The Bybit breach is a wake-up call for the entire industry. Security is not simply a competitive edge – it is a shared responsibility.”
Mooly Sagiv, CEO and co-founder of Certora, explained, “As the crypto industry matures, hackers will find more sophisticated ways to siphon off funds. The onus lies with companies to develop safer products for users. Incidents like the Bybit hack erode investor confidence, and stakeholders must take all necessary precautions to initiate a trust-building exercise.”
As the speculative frenzy settles down for a while, companies have the window to focus on building safe crypto products with real use cases. VCs have been doing this for a long time and continue to do so during market volatility.
VCs Invest In Future Technologies That Create Value
NFTs and the metaverse didn’t feature among the popular crypto narratives of 2024 in any dimension including mindshare. They were remnants of the past crypto bull market cycle, forgotten amidst memecoins and the AI token frenzy. Yet, according to a Galaxy report, VCs invested the largest share of capital in categories like NFTs, metaverse, and gaming in Q4 2024.
The reality is that people like to gamble, play the lottery, and enjoy gaming. These multi-billion dollar U.S. industries, $65 billion, $100 billion, and over $100 billion annually respectively, are growing (globally), and in many instances, and are being transformed by Web3 technologies. It is an important point to bring to attention, especially as it relates to technology innovation and investment where gaming is a leading category of VC investment.
VCs often don’t follow a mindshare-based investing strategy. Instead, they identify categories with immense potential and invest early to reap dividends when the industry matures. For instance, in Q4 2024, the majority of capital for NFTs, DAOs, and metaverse went to early-stage companies and projects.
According to Ronald Yung from RaveDAO, “NFTs were once perceived primarily as digital collectibles or icons of the last bull cycle, but their real value lies in their evolving utility. At RaveDAO, we’ve integrated NFTs beyond art—leveraging them for event ticketing as proof of attendance and participation.
“While the market sentiment around NFTs has shifted, the underlying technology remains a powerful tool for authentication, access control, and community engagement. The solution itself isn’t going anywhere — it’s simply adapting to real-world applications.”
Similarly, VCs had identified AI’s transformative potential long before ChatGPT became a household name, and AI tokens dominated investor mindshare. AI funding has grown steadily from just $670 million in 2011 to $36 billion in 2020.
VC capital inflows into emerging tech remain strong. In Q1 2025, AI funding outpaced crypto venture funding by a huge margin, continuing a historically preferential investment trend. Although the traditional AI space attracts more funds, blockchain-based AI startups have also started getting capital investments recently.
Rowan Stone, CEO of Sapien, said, “There’s still an enormous gap between legacy AI and crypto-AI investments, with institutional capital favoring the former, but bringing together two emerging categories, like crypto and AI to build frontier consumer-focused tech will likely drive more revenue growth and attract new investments.
“There’s more we can accomplish to build a smart AI-driven global ecosystem if we continue to develop good products within the crypto-AI sub-domain.”
The investment patterns show that VCs have identified more “future-proof” segments and deployed capital accordingly for long-term market growth. The Trump administration’s assurance that the American economy will experience a transitory period is a promise greatly supported by America’s leading Technology and Information sector.
The Technology and Information sector is the third largest U.S. services sector and contributes around 10 percent of GDP (~$2.4 trillion), behind the second, Healthcare & Social Assistance – around 18 percent of GDP (~$4.5 trillion), and the number one services sector leader, Financial Services, which contributes around 20 percent of GDP (~$5 trillion) – the U.S. is the home of the global capital markets.
The American market boom is anything but over for the Financial Services sector, according to Larry Fink, the chairman and ceo of Blackrock, in his Annual Report. In fact, it’s just getting started. Historically, markets in transition always presented enormous scope for innovation. The ongoing market transition also provides a good reminder to strive for innovation without getting distracted by daily stock market moves.
Warren Buffet, arguably history’s most successful fundamental investor, advises us to, “Remember that the stock market is a manic depressive.” In a recent CNBC interview, he said “When valuations swing wildly, always focus on the underlying quality — opportunities abound in the chaos.”
Always stay rational.
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