The Future of VC Investing: Moving On-Chain and Embracing Secondary Markets

5 min readFeb 24, 2025

The venture capital landscape is undergoing a transformation as firms increasingly adopt blockchain technology and explore secondary market investments. This shift is driven by advancements in tokenization, growing institutional participation, and the performance resilience of crypto hedge funds. What are these trends and what is their impact for the broader financial ecosystem?

The Rise of On-Chain Venture Capital

Venture capital firms are increasingly leveraging blockchain technology to enhance transparency, liquidity, and efficiency. The on-chain model allows for real-time tracking of fund flows, reducing administrative overhead and increasing investor confidence. Tokenization, a key component of this transformation, enables the fractionalization of assets, allowing broader participation and more dynamic capital allocation.

Growth of Crypto Hedge Funds and Institutional Adoption

The number of dedicated crypto hedge funds has risen sixfold since 2018, reflecting the rapid expansion of digital asset investment strategies.

“As of the first quarter of 2024, growth of dedicated crypto hedge funds has risen sixfold since 2018,” Coinbase reported. “While multiple data sets track approximately 1,000 dedicated funds, we estimate that less than one third of crypto-dedicated funds are ready for institutional allocator capital.”

Further insights from Coinbase indicate that:

More than 80% of crypto funds have less than $50 million in assets.
Only 5% of crypto hedge funds manage more than $500 million in assets.
Institutional adoption is accelerating, with major hedge funds like Brevan Howard, Man Group, and Millennium Management increasing exposure to crypto or launching dedicated funds.
A growing number of hedge fund veterans are leaving traditional firms to start or join crypto-focused funds, viewing this opportunity as similar to the emergence of hedge funds in the 1990s.
Many emerging managers have now established three-year track records, improved risk management strategies, and built experienced teams capable of navigating multiple crypto market cycles.

These factors highlight the institutionalization of the crypto hedge fund space, making it a critical component of the evolving on-chain venture capital ecosystem.

Performance of Crypto Hedge Funds

Crypto hedge funds have demonstrated notable resilience amid market fluctuations, underscoring the viability of on-chain investment strategies. In January 2025:

Tephra Digital, managing over $125 million in assets, reported a 9% gain, contributing to a 100% return in 2024.
Pythagoras Investments achieved an 8.51% return through a long-biased strategy, with assets under management reaching $249 million.
Edge Capital, overseeing $230 million, experienced a modest 1% increase.

These figures illustrate the growing appeal of crypto funds and their ability to generate significant returns despite market volatility. The cryptocurrency market capitalization fluctuated between $3.3 trillion and $3.7 trillion, ending the month with a 4% gain.

Chart 1: Crypto Hedge Fund Performance

Institutional Investment in Bitcoin ETFs

Institutional adoption of cryptocurrency assets continues to rise, particularly in the realm of Bitcoin exchange-traded funds (ETFs). In Q4 2024:

The State of Wisconsin Investment Board more than doubled its holdings in the iShares Bitcoin Trust ETF, reaching 6 million shares.
Tudor Investment Corp expanded its stake to 8 million shares, valued at approximately $426.9 million by December’s end.
The Abu Dhabi sovereign wealth fund, Mubadala Investment Co, acquired 8.2 million shares in the same ETF.

This surge in institutional investment reflects increasing confidence in digital assets, paving the way for venture capital firms to integrate similar on-chain mechanisms for fundraising and deployment.

Chart 2: Growth in Bitcoin ETFs versus Gold ETFs (2024–2025)

Advancements in Tokenization and Secondary Market Investments

Tokenization is emerging as a pivotal force in reshaping financial markets. Firms are actively developing solutions to bring traditional assets on-chain, enhancing liquidity and accessibility.

Ondo Finance launched Ondo Global Markets, a platform designed to bring U.S. securities — stocks, bonds, and ETFs — on-chain, improving efficiency in secondary market trading.
Realize, an Abu Dhabi-based firm, introduced the Realize T-BILLS Fund, investing in U.S. Treasury-focused ETFs and tokenizing these assets for blockchain trading. The fund aims to reach $200 million in assets.

These initiatives highlight how blockchain technology is transforming secondary markets, allowing for increased liquidity and more dynamic investment strategies.

Chart 3: Growth in Tokenized Financial Assets (2024–2025)

Implications for Venture Capital Firms

The integration of blockchain technology into venture capital presents several opportunities and challenges:

Increased Liquidity: Tokenized VC funds allow for secondary trading, enabling investors to exit positions without traditional lock-up periods.
Enhanced Transparency: Blockchain-based tracking provides real-time insights into fund performance and asset allocation.
Regulatory Considerations: Compliance with evolving regulations remains a key challenge, necessitating collaboration with financial authorities.
Market Expansion: The ability to fractionalize investments lowers entry barriers, attracting a more diverse investor base.

Conclusion

The movement of venture capital firms on-chain and into secondary markets represents a fundamental shift in the investment landscape. As tokenization and institutional adoption continue to accelerate, these developments will redefine how capital is raised, allocated, and traded. Firms that embrace these innovations will be well-positioned to capitalize on the evolving financial ecosystem.

Written by: Sarah Abuagela

Research Sources

“Crypto Hedge Fund Performance in 2024”, PwC and AIMA (2024) 6th Annual Global Crypto Hedge Fund Report.
“Institutional Investment Trends in Bitcoin ETFs”, AInvest (2025) ‘Institutional Investors Triple Bitcoin ETF Holdings Despite Volatility’, AInvest, 20 February.
“Tokenization and the Future of Secondary Markets”, Financial Times (2025) ‘Innovations expected to turbo-charge crypto ETF industry’, Financial Times, 20 February.
“Venture Capital and Blockchain Integration”, Galaxy Digital (2024) 2024 Institutional Crypto Hedge Fund & Venture Report.