Venture capital firms are critical to infrastructure development in the Bitcoin ecosystem, despite pushback from some in the community, according to builders speaking at the Token2049 conference in Dubai.

Charlie Yechuan Hu, CEO of Bitcoin layer-2 protocol Bitlayer, shared his insights on venture capital (VC) firms in the Bitcoin (BTC) ecosystem.

Hu told Cointelegraph that he views many VC firms in the space positively, as they offer support to early ventures that need capital to build infrastructure.

“You need developers, you need to open up the whole ecosystem foundation, everything,” Hu said. “You need to pay for the cloud, like AWS or RPCs, all that, servers […] So, we have to have VC on that.“

Hu challenged the usual Bitcoiner ethos that argues against outsider capital.

“It’s difficult to say, okay, let’s do a fair mint, and then have a very successful, healthy treasury, and you have to pay all this stuff,” he said. “It doesn’t work that way.”

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Lightning-only stance sparks debate

Not everyone agrees. Mike Jarmuz, a managing partner at Bitcoin venture capital firm Lightning Ventures, told Cointelegraph that Lightning is the only L2 his company has invested in and is interested in.

He said, “Anything with a ‘token’ that allows for ‘staking’ and earning some absurd APY interest on your Bitcoin should be avoided.”

Lightning Network, on the other hand, is growing very quickly and makes Bitcoin transactions instant, nearly free and scalable, Jarmuz said. Bitcoin Visuals data shows that the Lightning Network had a cumulative capacity across all channels equivalent to almost $452 million at the time of writing. He added:

“There is no ‘token’ when using the Lightning network. It’s Bitcoin. That to me is the only real L2, at least as of right now.“Lightning Network capacity chart. Source: Bitcoin Visuals

Jarmuz said projects not meeting his criteria are “masquerading as useful” while doing nothing for Bitcoin. Sidechains like the Liquid Network and newer protocols such as e-cash and federations or Ark “are not widely used” but “are at least interesting,” he said.

He recognized that those “do not involve a staked token, promising yield,” with projects that have those features, “just waiting for rug pulls and issues.”

“We don’t invest in that area,“ he added.

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VCs seen as enablers of Bitcoin growth

According to Hu, VCs bring liquidity, resources and experience to new startups while opening “up all the institutional ideas and connections.” Those were important additions to Bitlayer’s resources as well, he said, noting that “we wouldn’t have that if those people didn’t invest in us.”

He also argued that VCs tend to back long-term infrastructure efforts rather than speculative projects like memecoins or non-fungible tokens.

That experience was echoed by Walter Maffione, lead engineer at Lightning Network-based decentralized exchange (DEX) Kaleidoswap, who told Cointelegraph that the protocol started as an open-source project and raised a pre-seed investment from Fulgur Ventures and Bitfinex Ventures.

“Those funds were used to pay open-source developers and accelerate protocol development, not to build a token or capture governance rights,“ he said.

Hu claimed that VCs have contributed significantly to developing layer-2 scalability solutions, wallets, Bitcoin lending and staking protocols. He added:

“All of them are VC-backed, including us. And some of them are listed on top exchanges.”

Vikash Singh, principal at Bitcoin VC firm Stillmark, told Cointelegraph that when selecting Bitcoin layer-2 protocols to invest in, they consider demonstrated security and robustness, proliferation and adoption of non-speculative use cases and growth of the application layer. Much like Jarmuz, he said that Stillmark believes that proof-of-work is the superior consensus model.

Still, unlike Jarmuz, Singh said proof-of-stake or Byzantine fault-tolerant consensus “may be suitable for Bitcoin sidechains and rollups.”

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Institutional demand for Bitcoin is growing, as Coinbase, the world’s third-largest cryptocurrency exchange, recorded its highest daily outflows of Bitcoin in 2025 on May 9.

On May 9, Coinbase saw 9,739 Bitcoin (BTC), worth more than $1 billion, withdrawn from the exchange — the highest net outflow recorded in 2025, according to Bitwise head of European research André Dragosch.

“Institutional appetite for bitcoin is accelerating,” Dragosch added in a May 13 X post.

Source: André Dragosch

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The outflow occurred as Bitcoin traded above $103,600 and just days after the White House announced a 90-day reduction in reciprocal tariffs between the US and China, easing market concerns and lifting broader investor sentiment.

Joint statement on US-China meeting in Geneva. Source: The White House

The 90-day suspension of additional tariffs removes the risk of “sudden re-escalation,” which may help Bitcoin, altcoins and the wider stock market rally due to improved risk appetite, Nansen’s principal research analyst, Aurelie Barthere, told Cointelegraph.

Related: Bitcoin ETFs, gov’t adoption to drive BTC to $1M by 2029: Finance Redefined

Corporate Bitcoin investment may lead to supply shock

Growing demand from institutional investors and corporations may lead to a diminishing Bitcoin supply on exchanges, signaling a potential price rally driven by a “supply shock,” which occurs when buyer demand meets decreasing available BTC, leading to price appreciation.

While Bitcoin may experience short-term corrections, Dragosch remains “very bullish” for the rest of 2025, he told Cointelegraph during the Chain Reaction daily X show on May 12.

“In 2025 alone, corporations have bought four times more Bitcoin than all US spot Bitcoin ETFs combined, which is crazy,” he said. “We’re close to 200,000 Bitcoin already, which is the annual supply of new Bitcoin.”

Despite the bullish backdrop, Dragosch noted that the crypto market may still see short-term corrections due to what he described as overheated investor sentiment.

Bitcoin illiquid supply. Source: Glassnode

Meanwhile, Bitcoin’s “illiquid supply” reached a record 14 million BTC, according to Glassnode data, signaling that large investors continue accumulating, Cointelegraph reported on May 13.

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Opinion by: Jupiter Zheng, Partner Liquid Fund at HashKey Capital

Whenever Bitcoin falls in value, the narrative is always the same: It’s failing as a hedge against inflation. In the eyes of critics, Bitcoin is not the “digital gold” that so many others claim it to be.

With gold hitting all-time highs, these critics have grown louder. If Bitcoin is an inflation hedge, they ask, why isn’t it also rallying as investors seek safety?

Even in today’s bearish, high-inflation environment, the cardinal truth holds: Bitcoin is an inflation hedge — arguably the most important one for long-term capital preservation the world has seen. 

Strength in scarcity

Bitcoin has a hard cap of 21 million coins, with full circulation expected by 2140. This built-in scarcity mirrors gold, which has historically served as an inflation hedge. Bitcoin has outperformed gold during multiple periods, such as the COVID-19 era, when global markets were flooded with liquidity.

Like gold, Bitcoin works as an inflation hedge over the long term, not the short term. Critics focus too much on short-term volatility and ignore broader trends. Bitcoin has consistently been used as a store of value during extended periods of money printing.

Bitcoin is not controlled by any central bank or politician. It’s a decentralized, peer-to-peer system governed by math and consensus — not by election cycles or political pressure. In places like Zimbabwe or Venezuela, where governments destroyed their currencies, Bitcoin has offered a more stable alternative. When faith in traditional systems weakens, Bitcoin often strengthens. 

Consensus beats centralization

Bitcoin’s value isn’t just in its price — it’s in its design. Countries like the US, EU, UAE, Singapore, and Hong Kong have advanced regulations around Bitcoin, but its relevance goes far beyond developed economies.

Inflation is an inconvenience in wealthier countries — rising grocery bills and pricier eggs. In struggling economies, inflation can signal political and financial collapse. Bitcoin offers a way out. It’s not theoretical anymore — it’s happening in real life.

During Greece’s 2015 crisis, citizens used Bitcoin to bypass capital controls. In Venezuela and Argentina, where national currencies lost most of their value, Bitcoin became a tool for survival. People used it to preserve wealth, access global markets, and transact on decentralized exchanges.

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Bitcoin’s borderless, censorship-resistant nature is critical. It doesn’t rely on the decisions of any one institution. It’s protected from debt monetization, interest rate manipulation, and geopolitical pressures. Bitcoin runs on consensus, not command. 

Consensus matters most when trust in institutions is low. This immutability is a characteristic that investors are undervaluing — and may not appreciate until they need it the most. 

Portability is power

Bitcoin’s resilience also matters in developed markets — especially when traditional systems fail. Banks can collapse. Stock markets can crash. Payment processors can go offline. Bitcoin doesn’t sleep. It runs 24/7, 365 days a year.

During the Silicon Valley Bank collapse in March 2023, Bitcoin jumped 23% as investors sought safety outside the traditional banking system. Bitcoin’s availability and independence became its advantage.

In a bank failure like Lehman Brothers in 2008, consumers can lose access to their funds for months or even years. Bitcoin, held in self-custody, remains in your control — as long as you have the private keys. No third party is needed.

Payment networks like Visa or SWIFT can also become chokepoints — and targets for hackers who want to disrupt the global payments infrastructure. Bitcoin isn’t subject to those bottlenecks. Miners, not banks, verify it. While congestion can slow transactions, scaling solutions are evolving to improve speed and cost.

Bitcoin’s digital nature makes it especially valuable during capital controls, inflation, or crisis. It’s hard to seize, devalue, or freeze — giving individuals more autonomy than traditional financial systems allow.

A more nuanced term: speculative hedge  

Based on these characteristics, Bitcoin is unmistakably a hedge against inflation. Maybe we need a better term for Bitcoin’s central role in our financial futures.

A more precise term might be speculative hedge — it offers long-term protection thanks to scarcity, consensus and decentralization. 

Yet, adoption and price volatility are still hurdles to Bitcoin dethroning gold as a true global inflation hedge. Still, there are encouraging signs. Companies like Strategy, GameStop, Block and MassMutual have added Bitcoin to their balance sheets as a treasury strategy — with some estimates pointing to one in four companies in the S&P 500 following suit by 2030. More governments are exploring Bitcoin reserves.

As a speculative hedge, Bitcoin shines during inflation, currency devaluation, or systemic instability. It’s not a cure-all. Its effectiveness depends on user education, internet access, and geopolitical context. If connectivity disappears entirely — say, during a nuclear war — there will be bigger problems than inflation.

Bitcoin is best understood as a financial lifeboat. It’s not perfect. It takes effort to use it correctly. It’s a small measure of preparation for life’s unknowns. But when the ship starts sinking, you’ll wish you had one.

Opinion by: Jupiter Zheng, Partner Liquid Fund at HashKey Capital.