Waterdrop Capital CEO Warns Crypto Industry Is Losing Its Core
A candid industry post-mortem from the CEO of Waterdrop Capital argues that the crypto sector is undergoing a structural collapse that goes far beyond a cyclical bear market. The assessment points to a wave of Web3 project failures, a marked erosion of influence among top centralized exchanges, and a broad retreat from primary markets — a combination that is hollowing out the industry’s foundations.
What the Industry Is Losing
The core argument is that three pillars that sustained crypto through previous cycles are now crumbling:
- Web3 project mortality: A large cohort of Web3 startups that raised capital in 2021–2022 are running out of runway. Token prices have collapsed, user growth has stalled, and many teams are quietly shutting down or pivoting to AI. The result is a shrinking pipeline of credible new protocols.
- CEX loss of influence: Once the gatekeepers of liquidity and listings, top centralized exchanges are losing pricing power and cultural relevance. Spot volumes have migrated to ETFs and over-the-counter desks, while regulatory pressure has constrained listing and market-making activities. The exchange as a kingmaker is fading.
- Primary market retreat: Venture capital and token funds are pulling back from early-stage crypto deals. High-profile funds have slashed deployment, and token launches increasingly fail to attract sustained liquidity. The venture flywheel that funded innovation is stalling.
Why This Cycle Feels Different
Unlike previous drawdowns, this downturn is coinciding with genuine product-market fit elsewhere — namely AI. Capital, talent, and attention are rotating out of crypto and into AI infrastructure and applications. That competition for mindshare makes a reflexive recovery less likely. Meanwhile, the industry’s retail base remains fragmented and wary after multiple high-profile blowups.
The Narrow Path Forward
The analysis identifies two potential catalysts that could reverse the decline:
- Bitcoin as a national reserve asset: Sovereign adoption of Bitcoin — whether through strategic reserves, sovereign wealth allocations, or legal-tender expansion — would inject a powerful narrative and real demand. It would also legitimize crypto at the highest levels of macro policy.
- On-chain super-apps: The emergence of consumer-facing applications that bundle payments, identity, trading, and social features into a single on-chain experience could reignite user growth. Such apps would need to abstract away complexity and deliver tangible utility beyond speculation.
Implications for Builders and Investors
For founders, the message is to focus on sustainable revenue and real users rather than token mechanics. For investors, the opportunity may lie in infrastructure that survives the shakeout — custody, compliance, and on-chain data — rather than in the next speculative narrative. The industry is not dying, but it is being forced to grow up.
Forward-Looking Perspective
The crypto industry is entering a consolidation phase that will separate durable protocols from ephemeral hype. The survivors will likely be those that integrate with traditional finance, serve sovereign and institutional demand, and deliver consumer-grade on-chain experiences. The next bull market, if it comes, may look very different from the last — less speculative, more utility-driven, and more tightly woven into the global financial system.
