“The Crypto VC Market is Duller Than Ever”

Crypto venture capital activity recorded in the third quarter of 2024 remained fairly dormant.

Venture capital firms invested $2.4 billion in cryptocurrency startups across 478 deals this quarter, according to a new report from crypto investment firm Galaxy Digital. This represents a 20% decrease in terms of funding compared to the second quarter of the year and a 17% decrease in the number of deals.

The sector, which received 8 billion dollars of investment during the first three quarters of the year, can get much less in 2024 than it did in 2023. These numbers are a far cry from 2021 and 2022, when the industry received more than $30 billion in investments across 3,000 deals each year.

“Distributor interest in the crypto-focused VC and general venture capital sector is down considerably from previous years,” said Alex Thorn, head of research at Galaxy Digital.

Thorn listed the reasons for this lack of interest as follows: High interest rates make venture funds less attractive, spot bitcoin (BTC) and ether (ETH) exchange-traded funds (ETFs) are more attractive options for investing in crypto, the industry’s expected growth in 2022. Failure to break prejudice after collapses.

However, Thorn added that ETF-driven market volatility has “led to increased competition among surviving crypto VCs, putting entrepreneurs ahead when it comes to valuations.”

According to Thorn, “If you can provide investment capital, it’s a great time to be a founder.”

The majority of capital is allocated to early-stage companies, that is, startups that are still developing their products and business models. These companies received 85% of the capital investment, while subsequent companies, which often already had a well-known product and brand, received only 15% of the capital.

While crypto company valuations fell in 2023, they rose again in the second quarter of 2024 and remained solid in the third quarter, with an average deal size of $3.5 million.

Some sectors of the crypto ecosystem have received more attention than others. Crypto exchanges, lending, investment and trading platforms have raised over $460 million, which is 18% of VC capital. These were followed by layer-1 projects with approximately 440 million dollars, Web3/Metaverse projects with approximately 360 million dollars, and infrastructure projects with 340 million dollars. Galaxy also reported that projects combining crypto and artificial intelligence (AI) raised approximately $270 million, which is five times more than in the previous quarter.

Unsurprisingly, the US led the way in investments, accounting for 56% of all capital and 44% of all crypto deals. The UK came in second in terms of capital with 11% and was third in that category, accounting for 6.8% of deals. Singapore-based VCs accounted for 7% of all capital but executed 8.7% of all deals.

The report noted that fundraising for crypto venture funds has been challenging, with only $140 million raised across eight new funds. “On an annual basis, 2024 is shaping up to be the weakest year for crypto VC funds since 2020, with 39 new funds raising $1.95 billion, falling well short of the frenzy in 2021-2022,” the report said.