You’ve got to give the crypto enthusiasts this much: The true believers in the still young but beaten-down asset are a die hard breed. Even after Bitcoin has fallen nearly 70% from its late 2021 high and as VCs pull back on investments in other sectors, venture activity in crypto and blockchain startups is as busy as ever.

As of last Friday, VC investments in the space have reached $18.3 billion so far in 2022. That’s nearly triple the amount invested in 2020 and also on pace to exceed 2021’s record haul of $32.4 billion, according to Steven Alexopoulos, an analyst at J.P. Morgan.

Some of the crypto fundraising rounds this year have been substantial in size. In January, Fireblocks, a digital-asset infrastructure startup that has since partnered with the likes of BNP Paribas, raised $550 million at a valuation of $8 billion. In March, Yuga Labs, the company responsible for Bored Ape Yacht Club NFTs, raised $450 million at a $4 billion valuation.

On Monday, blockchain startup Aptos Labs raised $150 million in a round led by FTX. FTX, meanwhile, is reportedly in talks to raise $400 million only six months after raising another $400 million at $32 billion valuation.

“One of the most interesting trends we have observed in recent quarters has been the record pace of VC investment into startups in the crypto and blockchain industries,” Alexopoulos said in a research note. Alexopoulos noted that the flow of capital into these startups “should persist—and it’s no surprise, given how easily VC funds are also raising money.

Last week, Toronto-based Round 13 Capital raised $70 million to invest in blockchain startups. Earlier this year, Haun Ventures, founded by a former prosecutor and Andreessen Horowitz partner, raised $1.5 billion for crypto investments; while investment firm Bain Capital launched a $560 billion crypto-only fund. And in the midst of May’s crypto selloff, Andreessen Horowitz unveiled a $4.5 billion crypto fund, the industry’s largest to date.

But hold on. Isn’t crypto going through a hard time? It’s not just Bitcoin and other cryptocurrencies plummeting in value, look at all the layoffs at crypto companies like Coinbase, Gemini, Crypto.com, Blockchain.com, BlockFi, and OpenSea, the last of which slashed a fifth of its workforce this month.

Others have fared worse. Three Arrows Capital, Celsius Network, and Voyager Digital have filed for bankruptcy court protection, while cryptocurrencies from Terraform Labs lost $60 million in investor money. So if we’re in the midst of a crypto winter, why are VC investments in the space so hot?

“Not all crypto companies are the same,” says Eliézer Ndinga, director of research at 21Shares, a Zurich- and New York-based company that issues crypto exchange-traded products through existing bank and brokerage accounts. Two key factors separate crypto winners from losers: The type of work the startups are doing, and how efficiently and responsibly they’re doing it.

VC money is flowing into areas likely to see growth once the dust settles in crypto markets: Building the infrastructure that can speed up and scale up blockchain transactions as well as nascent areas like Web3, NFTs, and blockchain-based gaming. Ndinga tells me that VCs are still showing interest in such cutting-edge innovations that hold some promise for broader adoption.

For example, blockchains today can process only about 15 transactions per second, a tiny fraction of the thousands of transactions Visa can handle. “Some of the most important technologies today, which I think we’ll be taking for granted tomorrow, would make blockchains able to process hundreds of thousands of transactions per second,” Ndinga says.

Ndinga, who joined 21Shares after working in the VC industry, said another distinction between crypto winners and losers, are those that follow the standard advice VCs give to startups during downturns: a strong product-market fit that can easily scale, cash-burn discipline, and leadership who can navigate turbulent bear markets.

Such next-generation blockchain technologies have echoes of the dot-com boom and bust 20 years ago, when broadband access lifted the Internet from a fringe technology to an indispensable part of our daily lives. Leaders that emerged from the dot-com wreckage—the Amazons, Googles, and eBays—dominate the tech landscape today.

While it’s too early to say for sure who those leaders will be, Ndinga says, “I personally believe that we’re going to see the next eBay and Amazon out of this bear market, for sure.”

Kevin Kelleher Submit a deal for the Term Sheet newsletter here.

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