While crypto tanked in 2018, investors are still pouring billions into the space. Blockchain and crypto-related firms raised $3.9 billion as of October 2018.

Travis Scher, who heads the investment arm at Digital Currency Group, shared his outlook on the crypto space with Business Insider.

Scher says the areas worth watching in 2018 include the rise of crypto infrastructure for institutional investors, blockchain-based games, and nonfungible tokens.

The cryptocurrency market kicked off 2018 with a bang, but wrapped up with a slump.

After peaking at $20,000, in December 2017, bitcoin now trades at about $4,000 per coin.

Despite this sell-off, venture investors are still pouring money into the nascent industry. Blockchain and crypto-related companies raised $3.9 million in the first three quarters of 2018, according to Pitchbook.

Business Insider spoke with Travis Scher, who heads the investment arm at Digital Currency Group (DCG), to get his outlook on the key crypto trends he's watching in 2019.

Founded by Barry Silbert, DCG has made investments in 130 crypto-focused portfolio companies, including market leaders like Coinbase, Circle, and Ledger.

Here are the key trends he's following in the new year.

More crypto infrastructure for big Wall Street investors

From crypto exchanges such as Coinbase and Kraken to crypto wallets like Abra, Blockchain, and Ledger, there's been a lot of growth in infrastructure for retail investors looking to enter the crypto space.

Proper infrastructure for big, sophisticated Wall Street investors, however — like custodians and security standards — has lagged behind.

That is, until now, Scher said.

A number of established Wall Street firms have started to dip their toes into trading crypto products and are looking for market safeguards to which they're accustomed.

Intercontinental Exchange, the owner of the New York Stock Exchange, is poised to launch a bitcoin futures product on its Bakkt platform in January.

ErisX, an exchange heavily backed by Wall Street investors such as DRW, Virtual Financial, and TD Ameritrade, will offer spot trading in cryptocurrencies like Bitcoin and Ether as well as future contracts in Bitcoin, subject to approval by the Commodity Futures Trading Commission.

Digital Currency Group has invested in four types of institutional infrastructure firms, including exchanges like ErisX, institutional custodians like BitGo and Ledger's enterprise Vault solution, new trading platforms like Omniex and SFOX, and data companies such as Digital Assets Data and Flipside.

Blockchain games and nonfungible tokens

While blockchain is typically known as being a platform that facilitates the transaction of digital currencies, there are alternative uses of the technology.

One includes games built on the blockchain. An early pioneer of these "blockchain games" is CryptoKitties, in which gamers can collect, breed, and trade cartoon kittens on the Ethereum blockchain.

The game took off in late 2017 and went so viral that it once caused Ethereum network congestion.

Nonfungible tokens are what facilitate digital collectible games like CryptoKitties. Each token is unique and distinguishable from others of the same class.

A common analogy of nonfungible tokens is baseball cards: Each has distinctive information and different degrees of scarcity.

That compares to cryptocurrencies such as bitcoin and ether, which are fungible tokens, meaning they can be exchanged, much like a dollar bill. You can swap a dollar bill with another dollar bill, and it wouldn't make any difference.

Scher thinks the development of blockchain games and nonfungible tokens could allow the nascent technology to be adopted more widely.

"We'll see more experimentation around gaming and nonfungible tokens, which will see some adoption, hopefully some big hits, push the infrastructure forward and [lead to] a variety of other use cases," he said.

This sector is largely ignored by venture capitalist because the games are a hit-driven business, Scher said.

"Venture capitalists should be paying attention to the ones that are building platforms and developer teams, companies that are not creating just one game but are building several developed business models that can succeed," he added.

Slower funding for blockchain startups and crypto hedge funds

Scher expects funding for crypto ventures to slow in the first half of this year as the market cools down from crypto-mania.

"The first half of 2018 saw tremendous amount of venture investments in the crypto markets, but now we have been in a bear market for so long that no matter what way the market goes over the first six months of this year, I think venture fund convictions around this industry are definitely going to be lower," he said.

This means it will be much harder for new blockchain startups to raise money and for existing crypto companies to raise follow-on rounds. The plunge in the crypto market has caused a number of blockchain startups to shutter operations or downsize, as Bloomberg reported in December.

Scher thinks the prolonged winter in crypto will have an effect on crypto hedge funds, and that will ripple through token sales.

"A lot of these funds suffered tremendous losses in 2018, and I think a lot of them are going to shut down," he said. "There is going to be a real struggle to raise new money. As there is going to be less money going into the crypto funds, there is going to be less money available for token projects."

Crypto markets started off last year with a bang, and a large number of new crypto hedge funds swarmed into the market.

But as 2018 neared its end, the market lost nearly 80% of its value from the all-time high it recorded in 2017.

According to Crypto Fund Research, 35 crypto hedge funds were forced to close shop in 2018.