Author: Alex Thorn, Gabe Parker, Galaxy; Compiled by: Five Baht, Golden Finance

Foreword

2024 is a brilliant year for the cryptocurrency market. Spot Bitcoin ETP was launched in January and November Electing the most pro-cryptocurrency president and Congress in U.S. history. Overall, the liquid cryptocurrency market added $1.6 trillion in market capitalization in 2024, growing 88% year-over-year for the year to $3.4 trillion. Bitcoin alone added $1 trillion in market capitalization, approaching $2 trillion for the year. The cryptocurrency narrative of 2024 is driven by Bitcoin’s meteoric rise (accounting for 62% of total market gains) on one hand, and memes and AI on the other. Meme is a popular cryptocurrency for most of the year, and most on-chain activity occurs on Solana. In the second half of the year, tokens operated by AI agents took center stage in the pre-Bitcoin cryptocurrency space.

Cryptocurrency venture capital in 2024 remains difficult. None of these major Bitcoin, memes, and AI agents are particularly suitable for venture capital. Memecoin can be launched with just a few button clicks, and Memecoin and AI proxy coins exist almost entirely on-chain, leveraging existing infrastructure primitives. Popular industries from the last market cycle, such as DeFi, gaming, the Metaverse and NFTs, have either failed to capture market attention or are already built, requiring less capital, making new startups more competitive. Crypto market infrastructure and gaming has largely been built and is now in an advanced stage, and with the next expected changes to U.S. regulation, these industries may face competition from entrenched traditional financial services intermediaries. There are signs that new meta-currencies may become important drivers of new capital inflows, but these range from immature to very nascent: the standouts are stablecoins, tokenization, DeFi integration with TradFi, and The overlap of crypto and artificial intelligence.

Macro and broader market forces also continue to provide headwinds. The high interest rate environment continues to put pressure on the venture capital industry, with allocators less willing to take risks further up the risk curve. This phenomenon has squeezed the venture capital industry as a whole, but the crypto venture capital industry may be particularly affected given its risks. Meanwhile, large integrated VC firms remain mostly shy of the space, perhaps still feeling cautious after the bankruptcies of several high-profile VC firms in 2022.

So while there are significant opportunities ahead, whether through the resurgence of existing primitives and narratives or the emergence of new primitives and narratives, crypto venture capital will be less likely than the frenzy of 2021 and 2022 to Still competitive and sluggish. Both deal and investment capital increased, but the number of new funds and allocations to venture capital stagnatedFunds have less capital, creating a particularly competitive environment for founders to negotiate valuations. Broadly speaking, venture capital investment remains well below levels seen in previous market cycles.

But the increasing institutionalization of Bitcoin and digital assets, as well as the growth of stablecoins, and the new regulatory environment may ultimately herald the possibility of some convergence between DeFi and TradFi, and also bring innovation. New opportunities are coming, and we expect that 2025 may see a meaningful recovery in venture capital activity and interest.

Summary

Venture capital investment in cryptocurrency startups was $3.5 billion in Q4 2024 (up 46% quarter-on-quarter) across 416 deals (down 13% quarter-over-quarter).

Throughout 2024, venture capitalists invested $11.5 billion in cryptocurrency and blockchain-focused startups across 2,153 deals.

Early-stage deals received the most capital investment (60%), while later-stage deals accounted for 40% of invested capital, a significant increase from 15% in Q3.

The median valuation of venture capital deals increased in the second and third quarters, with valuations for cryptocurrency-specific deals growing faster than the venture capital industry as a whole, but they were flat sequentially in the fourth quarter.

Stablecoin companies raised the most funds, led by Tether’s $600 million raised from Cantor Fitzgerald, followed by infrastructure and Web3 startups. Web3, DeFi and infrastructure companies accounted for the largest number of transactions.

In Q4, the majority of investment went to U.S.-based startups (46%), with Hong Kong companies accounting for 17% of all investment capital. In terms of number of transactions, the US leads with 36%, followed by Singapore (9%) and the UK (8%).

In terms of financing, investor interest in cryptocurrency-focused venture capital funds fell to $1 billion among 20 new funds.

At least 10 cryptocurrency venture capital funds have raised more than $100 million in 2024.

Venture Capital Deal Count and Invested Capital

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

As of 2024, venture capitalists have invested a total of $11.5 billion in cryptocurrency and blockchain startups across 2,153 deals.

Investment Capital and Bitcoin Price

In previous cycles, there was a multi-year correlation between Bitcoin price and capital invested in crypto startups, but last year this correlation Sex has been trying to come back. Since January 2023, thanBitcoin surges, while venture capital activity struggles to keep pace. Allocators' weaker interest in crypto ventures and broad ventures, coupled with the crypto market narrative favoring Bitcoin and ignoring many of the hot narratives of 2021, could partially explain this disparity.

Phase investing

In the fourth quarter of 2024, 60% of venture capital was invested in early-stage companies, while 40% was invested in later-stage companies. Venture capital firms are raising new capital in 2024, while crypto-native funds may still be able to draw from large rounds from a few years ago. Starting in the third quarter, more capital was flowing to later-stage companies, which could partially explain Tether’s $600 million raise from Cantor Fitzgerald.

On the deal side, the proportion of pre-seed deals has increased slightly and remains healthy compared to previous cycles. We track the proportion of pre-seed deals as a measure of the robustness of entrepreneurial behavior.

Valuations and Deal Sizes

Venture capital-backed cryptocurrency company valuations fell sharply in 2023, reaching their lowest levels since Q4 2020 in Q4 2023. However, valuations and deal sizes began to rebound in the second quarter of 2024 as Bitcoin hit new all-time highs. In the second and third quarters of 2024, valuations reached their highest levels since 2022. Growth in cryptocurrency deal sizes and valuations in 2024 is in line with similar increases across the venture capital space, despite a stronger rebound in cryptocurrencies. The median pre-money valuation for deals in Q4 2024 was $24 million, with the average deal size being $4.5 million.

Investment Categories

Companies and projects in the “Web3/NFT/DAO/Metaverse/Gaming” category accounted for the largest share of crypto venture capital raised in Q4 2024 (20.75 %), totaling US$771.3 million. The three largest deals in this category were Praxis, Azra Games, and Lens, which raised $525 million, $42.7 million, and $31 million, respectively. DeFi’s dominance as a share of total crypto venture capital investment is due to Tether’s $600 million deal with Cantor Fitzgerald, who took a 5% stake in the company (the stablecoin issuer falls into our Advanced DeFi category). Although this deal was not a traditional venture capital structured deal, we included it in our data set. If Tether transactions were removed, the DeFi category would have ranked 7th in terms of investment volume in Q4.

In the fourth quarter of 2024, build Web3/NFT/DAO/MeCrypto startups with taverse and infrastructure products saw their share of total quarterly crypto venture funding grow by 44.3% and 33.5% quarter-on-quarter respectively. The increase in capital allocation as a percentage of total capital deployed is primarily attributable to a significant sequential decline in crypto VC capital allocation to Layer 1 and crypto AI startups, down 85% and 55% respectively since Q3 2024.

If we break down the broad categories in the chart above into more granular parts, crypto projects building stablecoins raised 2% of crypto venture capital in Q4 2024 The largest share (17.5%), totaling $649 million across 9 tracked transactions. However, Tether’s $600 million deal represents the majority of total capital invested in stablecoin companies in the fourth quarter of 2024. Crypto startups developing infrastructure raised the second most venture capital capital in Q4 2024, at $592 million (16%) across 53 tracked deals. The three largest crypto infrastructure deals were Blockstream, Hengfeng Group, and Cassava Network, which raised $210 million, $100 million, and $90 million respectively. After crypto infrastructure, Web3 startups and exchanges ranked third and fourth in terms of funding raised from crypto VCs, totaling $587.6 million and $200 million respectively. Notably, Praxis was the largest Web3 deal and the second-largest deal in Q4 2024, raising a whopping $525 million to build "internet-native cities."

In terms of the number of transactions, Web3/NFT/DAO/Metaverse/games accounted for 22% of the transactions (92 transactions), of which 37 game transactions and 31 Web3 transactions were Push factors. The largest gaming deal in Q4 2024 was Azra Games, which raised $42.7 million in Series A funding. This was followed by Infrastructure and Trading/Exchange/Investment/Lending, with 77 and 43 transactions respectively in Q4 2024.

Projects and companies providing crypto infrastructure ranked second in the number of transactions, accounting for 18.3% of the total transaction volume (77 transactions), an increase of 11 percentage points month-on-month. Following crypto infrastructure, projects and companies building trading/exchange/investing/lending products ranked third in terms of number of transactions, accounting for 10.2% of the total (43 transactions). Notably, crypto companies building wallets and payment/reward products saw the largest month-on-month volume increases, at 111% and 78% respectively. While these quarter-on-quarter increases are large in percentage terms, wallet and payments/rewards startups areQ4 2024 accounted for only 22 and 13 transactions respectively.

Breaking down the broad categories in the chart above into more granular parts, projects and companies building crypto infrastructure had the highest number of deals (53) across all industries . They were followed by gaming and Web3-related crypto companies, which completed 37 and 31 transactions respectively in Q4 2024, almost in the same order as in Q3 2024.

Investments by Stage and Category

Breaking down invested capital and deal volume by category and stage provides a clearer picture of what types of companies in each category are raising capital. In the fourth quarter of 2024, the vast majority of capital in Web3/DAO/NFT/Metaverse, Layer 2s, and Layer 1s has flowed to early-stage companies and projects. In contrast, a significant portion of crypto VC money invested in DeFi, trading/exchanges/investing/lending, and mining goes to later-stage companies. This is to be expected given the relative maturity of the latter relative to the former.

Analyzing the distribution of investment capital at different stages within each category can reveal the relative maturity of various investment opportunities.

As with the crypto venture capital invested in Q3 2024, a large portion of deals completed in Q4 2024 involved early-stage companies. Crypto VC deals tracked in Q4 2024 included 171 early-stage deals and 58 later-stage deals.

Examining the share of deals completed by stage in each category provides insight into the various stages of each investable category.

Investments by Geography

In Q4 2024, 36.7% of deals involved companies headquartered in the United States. This is followed by Singapore (9%), the United Kingdom (8.1%), Switzerland (5.5%) and the United Arab Emirates (3.6%).

U.S.-based companies attracted 46.2% of all venture capital investment, down 17 percentage points from the previous quarter. As a result, Hong Kong-based startups saw a significant increase in venture capital allocation to 17.4%. The UK is at 6.8%, Canada is at 6% and Singapore is at 5.4%.

Group Investment

Companies and projects founded in 2019 accounted for the largest share of capital, while companies and projects founded in 2024 accounted for the largest number of transactions.

Venture Capital Financing

Financing crypto venture funds remains challenging. The macro environment and crypto market volatility in 2022 and 2023 has made some allocators reluctant to make the same level of commitment to crypto venture investors as they did in 2021 and early 2022. In early 2024, investmentInvestors generally believe that interest rates will fall significantly in 2024, although the rate cuts do not start to materialize until the second half of the year. Total capital allocated to venture funds continues to decline sequentially since Q3 2023, despite an increase in the number of new funds throughout 2024.

On an annual basis, 2024 was the weakest year for crypto venture capital fundraising since 2020, with 79 new funds raising $5.1 billion, well below 2021-2022 craze.

While the number of new funds did increase slightly year over year, declining allocator interest has also led to VC firms raising smaller fund sizes, with both the median and average funds raised in 2024 Fund size reached its lowest level since 2017.

At least 10 cryptocurrency venture funds actively investing in cryptocurrency and blockchain startups have raised more than $100 million in new funds in 2024.

Summary

Sentiment is improving and activity is increasing, although both remain well below previous highs. While liquid crypto asset markets have recovered significantly from late 2022 and early 2023, venture capital activity remains well below previous bull runs. The bull runs of 2017 and 2021 featured a high correlation between venture capital activity and liquid crypto asset prices, but over the past two years activity has been subdued while cryptocurrencies have rebounded. The stasis in venture capital is due to a number of factors, including the "barbell market" that puts Bitcoin (and its new ETFs) center stage, as well as marginal net new activity from meme coins, which are difficult to fund and have questionable longevity. Enthusiasm for projects at the intersection of artificial intelligence and cryptocurrency is growing, and expected regulatory changes could open the door to stablecoin, DeFi, and tokenization opportunities.

Early-stage deals continue to lead the way. Despite the headwinds facing venture capital, interest in early-stage deals still bodes well for the long-term health of the broader cryptocurrency ecosystem. The late-stage trading crowd made progress in the fourth quarter, but that was largely due to Cantor Fitzgerald’s $600 million investment in Tether. Nonetheless, entrepreneurs continue to find willing investors for new innovative ideas. We believe projects and companies building stablecoins, AI, DeFi, tokenization, L2 and Bitcoin-related products will do well in 2025.

Spot ETPs may put pressure on funds and startups. Several high-profile investments in spot Bitcoin ETPs by U.S. allocators suggest that some large investors (pensions, endowments, hedge funds, etc.) may be gaining exposure to the industry through large liquidity vehicles, rather than turning to early-stage venture capital. Interest in spot Ethereum ETPs has started to increase and if this continuesGo down, or even if new ETPs are launched covering other alternative layer 1 blockchains, demand for segments like DeFi or Web3 will likely flow to ETPs rather than the VC complex.

Fund managers still face a difficult environment. While the number of new funds increased slightly year-over-year in 2024, the total capital allocated to crypto venture funds was slightly lower than in 2023. Macroeconomics continue to create headwinds for allocators, but significant changes in the regulatory environment could revive allocator interest in the space.

The United States continues to dominate the crypto startup ecosystem. Despite a tricky and often hostile regulatory regime, U.S.-based companies and projects still account for the majority of completed deals and the majority of capital invested. The new president and Congress will be the most pro-cryptocurrency and Congress in history, and we expect U.S. dominance to increase, especially if certain regulatory matters are solidified as expected, such as stablecoin frameworks and market structure legislation. , which would allow traditional U.S. financial services companies to seriously consider entering the space.