Galaxy Q4 2024 Crypto Venture Capital Report: $3.5 Billion Invested; VC Environment Remains ChallengingCrypto & Blockchain Venture Capital -- Q4 2024

Crypto & Blockchain Venture Capital -- Q4 2024

Authors: Alex Thorn, Gabe Parker, Galaxy

Compiled by: Luffy, Foresight News

Introduction

2024 is a landmark year for the cryptocurrency market, marked by the launch of spot Bitcoin exchange-traded products (ETPs) at the beginning of the year and the election of the most crypto-friendly president and Congress in U.S. history in November, bringing the year to a successful close. In 2024, the total market capitalization of the cryptocurrency circulation market increased by $1.6 trillion, a year-on-year growth of 88%, reaching $3.4 trillion by the end of the year. Bitcoin alone saw its market cap increase by $1 trillion, nearing $2 trillion by year-end. The development of the cryptocurrency market in 2024 was driven on one hand by the rapid rise of Bitcoin, and on the other hand by the influence of Memecoins and AI-related cryptocurrencies. For most of the year, Memecoins were popular, with most on-chain activities occurring on the Solana blockchain. In the second half of the year, AI agents in cryptocurrency became the new focus.

In 2024, venture capital (VC) in the cryptocurrency space remained challenging. Mainstream hotspots like Bitcoin, Memecoins, and AI agents are not particularly suitable for venture capital. Memecoins can be launched with just a few clicks, and cryptocurrencies related to Memecoins and AI agents operate almost entirely on-chain, utilizing existing infrastructure primitives. Popular sectors from the last market cycle, such as decentralized finance (DeFi), gaming, the metaverse, and non-fungible tokens (NFTs), either failed to attract significant market attention or have already been built out, leading to reduced funding needs and intensified competition for startups. Most businesses related to cryptocurrency market infrastructure have been built out and are entering a later stage of development, and with anticipated regulatory changes from the next U.S. government, these areas may face competition from traditional financial service intermediaries. There are signs that some new hotspots are emerging, which could become important drivers of new capital inflows, but most are still immature or in their infancy: notable examples include stablecoins, tokenization, the integration of DeFi with traditional finance (TradFi), and the intersection of cryptocurrency and AI.

Macroeconomic and broader market forces also pose resistance. The high-interest-rate environment continues to pressure the venture capital industry, with capital allocators less willing to take on higher risks. This phenomenon has squeezed the entire venture capital industry, and the cryptocurrency venture capital sector, due to its higher risk perception, may be affected even more severely. Meanwhile, most large, diversified venture capital firms still maintain an avoidance attitude toward the sector, perhaps still haunted by the collapse of several well-known VC-backed companies in 2022.

Therefore, despite significant opportunities ahead, whether through the revival of existing primitives and narratives or the emergence of new ones, cryptocurrency venture capital remains competitive and relatively subdued compared to the frenzy of 2021 and 2022. The number of deals and investment amounts have increased, but the number of new funds has stagnated, and the capital allocated to venture capital funds has decreased, creating a particularly competitive environment that favors founders in valuation negotiations. Overall, venture capital remains far below the levels of the last market cycle.

However, the increasing institutionalization of Bitcoin and digital assets, the growth of stablecoins, and the potential for a new regulatory environment to facilitate the integration of DeFi and TradFi all point to new opportunities for innovation. We expect that venture capital activity and attention may significantly rebound in 2025.

Key Takeaways

· In Q4 2024, venture capital investment in cryptocurrency startups reached $3.5 billion (up 46% quarter-on-quarter), involving 416 deals (down 13% quarter-on-quarter).

· For the entire year of 2024, venture capital firms invested $11.5 billion in cryptocurrency and blockchain startups, totaling 2,153 deals. Early-stage deals attracted the most capital investment (60%), while late-stage deals accounted for 40% of the investment capital, a significant increase from 15% in Q3.

· The median valuation of venture capital deals rose in Q2 and Q3, with the valuation growth of cryptocurrency deals outpacing the overall venture capital industry, but remained flat quarter-on-quarter in Q4.

· Stablecoin companies raised the most funds, with Tether securing $600 million from Cantor Fitzgerald, followed by infrastructure and Web3 startups. The number of deals in Web3, DeFi, and infrastructure companies was the highest.

· In Q4 2024, U.S.-based startups received the most investment (46%), while Hong Kong companies saw their investment share rise to 17%. In terms of deal count, the U.S. accounted for 36%, followed by Singapore (9%) and the UK (8%).

· In fundraising, capital allocators' interest in cryptocurrency-focused venture capital funds dropped to $1 billion, involving 20 new funds.

· At least 10 cryptocurrency venture capital funds raised over $100 million in 2024.

Venture Capital Situation

Deal Count and Investment Amount

In Q4 2024, venture capitalists invested $3.5 billion in startups focused on cryptocurrency and blockchain (up 46% quarter-on-quarter), with a total of 416 deals (down 13% quarter-on-quarter).

For the entire year of 2024, venture capitalists invested $11.5 billion in cryptocurrency and blockchain startups, totaling 2,153 deals.

Investment Amount and Bitcoin Price

In past cycles, there has been a long-term correlation between Bitcoin prices and the investment amounts in cryptocurrency startups, but this correlation has not been evident over the past year. Since January 2023, Bitcoin prices have surged, while venture capital activity has not kept pace. The waning interest of capital allocators in cryptocurrency venture capital and overall venture capital, combined with the cryptocurrency market's preference for Bitcoin narratives, which overlook many popular narratives from 2021, partially explains this discrepancy.

Investment by Stage

In Q4 2024, 60% of venture capital went to early-stage companies, while 40% went to late-stage companies. In 2024, venture capital firms raised new funds, and funds focused on the cryptocurrency sector may still have available capital from large-scale fundraising a few years ago. Since Q3, the proportion of funds received by late-stage companies has increased, partly attributed to the reported $600 million financing of Tether from Cantor Fitzgerald.

The proportion of pre-seed deals has slightly increased, maintaining a good trend compared to previous cycles. We measure the activity level of entrepreneurial behavior by tracking the proportion of pre-seed deals.

Valuation and Deal Size

In 2023, the valuations of venture-backed cryptocurrency companies fell sharply, reaching the lowest level since Q4 2020 in Q4 2023. However, with Bitcoin hitting an all-time high in Q2 2024, valuations and deal sizes began to rebound. In Q2 and Q3 2024, valuations reached their highest levels since 2022. The rise in cryptocurrency deal sizes and valuations in 2024 aligns with a similar upward trend in the overall venture capital space, although the rebound in the cryptocurrency sector is stronger. The median pre-money valuation for Q4 2024 deals was $24 million, with an average deal size of $4.5 million.

Investment by Category

In Q4 2024, companies and projects in the "Web3/NFT/DAO/Metaverse/Gaming" category received the largest share of venture capital (20.75%), totaling $771.3 million. The three largest deals in this category were Praxis, Azra Games, and Lens, raising $525 million, $42.7 million, and $31 million, respectively. DeFi's dominance in the total venture capital for cryptocurrency is attributed to the $600 million deal between Tether and Cantor Fitzgerald, which acquired a 5% stake in the company (stablecoin issuers fall under our broad definition of the DeFi category). Although this deal is not a traditional venture capital structure deal, we include it in our statistics. Excluding the Tether deal, the DeFi category would drop to seventh place in terms of investment amount in Q4.

In Q4 2024, cryptocurrency startups building Web3/NFT/DAO/Metaverse and infrastructure products saw their shares of the total quarterly cryptocurrency venture capital increase by 44.3% and 33.5%, respectively. The proportion of capital allocation to deployed capital increased, primarily due to a significant decrease in capital allocation to Layer 1 and crypto AI startups, which fell by 85% and 55%, respectively, since Q3 2024.

If we further break down the larger categories, cryptocurrency projects building stablecoins received the largest share of investment in Q4 2024 (17.5%), raising a total of $649 million across 9 tracked deals. However, Tether's $600 million deal accounted for most of the total investment in stablecoin companies in Q4 2024. In Q4 2024, cryptocurrency startups developing infrastructure ranked second in venture capital funding, raising a total of $592 million across 53 tracked deals. The three largest cryptocurrency infrastructure deals were Blockstream, Hengfeng Company, and Cassava Network, raising $210 million, $100 million, and $90 million, respectively. Following cryptocurrency infrastructure, Web3 startups and exchanges received the third and fourth largest amounts from cryptocurrency venture capital firms, totaling $587.6 million and $200 million, respectively. Notably, Praxis was the largest Web3 deal in Q4 2024 and the second-largest overall deal, raising up to $525 million to build an "internet-native city."

In terms of deal count, the Web3/NFT/DAO/Metaverse/Gaming category led with 22% of the total deals (92 deals), including 37 gaming deals and 31 Web3 deals. In Q4 2024, the infrastructure and trading/exchange/investment/lending categories had 77 and 43 deals, respectively.

Projects and companies providing cryptocurrency infrastructure ranked second in deal count, accounting for 18.3% of the total deals (77 deals), up 11% quarter-on-quarter. Following cryptocurrency infrastructure, projects and companies building trading/exchange/investment/lending products ranked third in deal count, accounting for 10.2% of the total deals (43 deals). Notably, cryptocurrency companies building wallet and payment/reward products saw the largest quarter-on-quarter increases in deal count, reaching 111% and 78%, respectively. Despite the large percentage increases, wallet and payment/reward startups only involved 22 and 13 deals in Q4 2024.

When further breaking down the larger categories, projects and companies building cryptocurrency infrastructure had the highest deal count across all segments (53 deals). Gaming and Web3-related cryptocurrency companies followed, completing 37 and 31 deals in Q4 2024, nearly the same ranking as in Q3 2024.

Investment by Stage and Category

Breaking down investment amounts and deal counts by category and stage provides a clearer understanding of which types of companies are raising funds in each category. In Q4 2024, the vast majority of funds in the Web3/DAO/NFT/Metaverse, Layer 2, and Layer 1 sectors flowed to early-stage companies and projects. In contrast, a significant portion of cryptocurrency venture capital funding in DeFi, trading/exchange/investment/lending, and mining sectors flowed to late-stage companies.

Analyzing the distribution of investment funds across different stages in each category can reveal the relative maturity of various investment opportunities.

Similar to the cryptocurrency venture capital situation in Q3 2024, a large portion of the deals completed in Q4 2024 involved early-stage companies. The tracked cryptocurrency venture capital deals in Q4 2024 included 171 early-stage deals and 58 late-stage deals.

Studying the proportion of deals at different stages in each category helps to understand the different development stages of each investable category.

Investment by Geography

In Q4 2024, 36.7% of deals involved companies headquartered in the U.S., with Singapore in second place at 9%, the UK at 8.1%, Switzerland at 5.5%, and the UAE at 3.6%.

U.S.-based companies received 46.2% of all venture capital, down 17 percentage points quarter-on-quarter. In contrast, venture capital funding for startups based in Hong Kong significantly increased, accounting for 17.4%. The UK accounted for 6.8%, Canada for 6%, and Singapore for 5.4%.

Investment by Year of Company Formation

Companies and projects established in 2019 received the largest share of funding, while companies and projects formed in 2024 had the highest number of deals.

Venture Capital Fundraising Situation

Fundraising for cryptocurrency venture capital funds remains challenging. The macro environment in 2022 and 2023, along with the volatility in the cryptocurrency market, has led some capital allocators to no longer commit to cryptocurrency venture capital at the same scale as in early 2021 and 2022. At the beginning of 2024, investors generally believed that interest rates would significantly decrease throughout the year, although rate cuts did not begin to materialize until the second half of the year. Since Q3 2023, total capital allocated to venture capital funds has continued to decline quarter-on-quarter, despite an increase in the number of new funds throughout 2024.

2024 is set to be the weakest year for cryptocurrency venture capital fundraising since 2020, with 79 new funds raising a total of $5.1 billion, far below the frenzied levels of 2021-2022.

Although the number of new funds has slightly increased year-on-year, the decline in interest from capital allocators has also led to smaller fund sizes raised by venture capital firms, with the median and average sizes of 2024 funds dropping to their lowest levels since 2017.

In 2024, at least 10 cryptocurrency venture capital funds actively investing in cryptocurrency and blockchain startups raised over $100 million for new funds.

Conclusion

· Market sentiment is improving, and investment activity is increasing, but it remains far below the peaks of previous cycles. Although the cryptocurrency circulation market has clearly rebounded since late 2022 to early 2023, venture capital activity is still far from the levels seen during previous bull markets. In the bull markets of 2017 and 2021, venture capital activity was closely related to the circulation prices of crypto assets, but over the past two years, despite the recovery in cryptocurrency prices, venture capital activity has remained sluggish. The stagnation in venture capital is caused by various factors, including a "barbell market," where Bitcoin occupies the center stage, while new marginal net activity mainly comes from Memecoins, which are difficult to finance and have questionable sustainability. Enthusiasm for projects at the intersection of AI and cryptocurrency is rising, and anticipated regulatory changes may bring opportunities for stablecoins, DeFi, and asset tokenization.

· Early-stage investment deals continue to dominate. Despite the many obstacles facing venture capital, the focus on early-stage deals is a positive sign for the long-term health of the broader cryptocurrency ecosystem. Late-stage investments made progress in Q4, but this was mainly due to Cantor Fitzgerald's $600 million investment in Tether. Even so, entrepreneurs are still able to find investors willing to back innovative ideas. We believe that in 2025, projects and companies related to stablecoins, AI, DeFi, tokenization, Layer 2, and Bitcoin are likely to perform well.

· Spot exchange-traded products (ETPs) may put pressure on venture capital funds and startups. In the U.S., some capital allocators have made notable investments in spot Bitcoin ETPs, indicating that some large investors (pensions, endowments, hedge funds, etc.) may prefer to enter the space through these large-scale, liquid instruments rather than opting for early-stage venture capital. Interest in spot Ethereum ETPs is also beginning to rise, and if this trend continues, or if new ETPs covering other Layer 1 blockchains are launched, the investment demand for areas like DeFi or Web3 may shift toward these ETPs rather than the venture capital space.

· Fund managers continue to face a difficult environment. Although the number of new funds in 2024 has slightly increased year-on-year, the total capital allocated to cryptocurrency venture capital funds is slightly lower than in 2023. The macro environment continues to pose challenges for capital allocators, but significant changes in the regulatory environment may reignite their interest in the cryptocurrency space.

· The U.S. continues to dominate the cryptocurrency startup ecosystem. Despite a highly complex and often hostile regulatory environment, U.S.-based companies and projects still account for the majority of completed deals and investment amounts. The incoming presidential administration and Congress are expected to be the most crypto-friendly in U.S. history, and we anticipate that the U.S.'s dominance will further strengthen, especially if certain regulatory matters, such as stablecoin frameworks and market structure legislation, are implemented as expected, allowing traditional financial service companies in the U.S. to truly enter the cryptocurrency space.