Introduction
2024 was a landmark year for the cryptocurrency market. The spot Bitcoin exchange-traded fund (ETP) was launched at the beginning of the year, and in November, the United States welcomed the most crypto-friendly president and Congress in history, putting a perfect cap on the year. 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. The market value of Bitcoin alone increased by $1 trillion, reaching nearly $2 trillion by the end of the year. The development trend of the cryptocurrency market in 2024 was driven by the rapid rise of Bitcoin on the one hand, and influenced by Memecoin and cryptocurrency related to artificial intelligence on the other.
In 2024, venture capital (VC) in the cryptocurrency field remained challenging. The mainstream hot spots of Bitcoin, Memecoin, and AI agent cryptocurrencies were not very suitable for venture capital. Memecoin can be launched with just a few clicks, and Memecoin and AI agent-related cryptocurrencies are almost entirely on-chain, utilizing existing infrastructure primitives. The popular areas of the previous market cycle, such as DeFi, gaming, metaverse, and Non-Fungible Tokens (NFTs), either failed to attract much market attention or have been built up, requiring less capital, and facing more intense competition for new startups. Most of the cryptocurrency market infrastructure-related businesses have been built, entering the late development stage, and with the expected regulatory changes of the next U.S. government, these areas may face competition from traditional financial service intermediaries.
Macroeconomic and broader market forces also pose obstacles. The high-interest rate environment continues to put pressure on the venture capital industry, and capital allocators are less willing to take on higher risks. This phenomenon squeezes the entire venture capital industry, and the cryptocurrency venture capital field, with its higher risk perception, may be more severely affected. At the same time, large diversified venture capital firms are still largely avoiding this field, perhaps still haunted by the collapse of several well-known venture-backed companies in 2022.
Therefore, although there are significant opportunities in the future, whether through the revival of existing primitives and narratives or the emergence of new things, compared to the frenzy of 2021 and 2022, cryptocurrency venture capital remains highly competitive and relatively calm. The number of transactions and investment amounts have increased, but the number of new funds has stagnated, and the funds allocated to venture capital funds have decreased, creating an increasingly competitive environment, more favorable to founders in valuation negotiations. Overall, venture capital is still well below the level of the previous market cycle.
However, the institutionalization of Bitcoin and digital assets, the growth of stablecoins, and the new regulatory environment may ultimately facilitate the integration of DeFi and TradFi, pointing to new opportunities for innovation. We expect venture capital activity and attention to rise significantly by 2025.
Key Points
· In the fourth quarter of 2024, venture capital investment in cryptocurrency startups was $3.5 billion (up 46% quarter-on-quarter), involving 416 transactions (down 13% quarter-on-quarter).
· In 2024, venture capital firms invested $11.5 billion in cryptocurrency and blockchain startups, with 2,153 transactions. Early-stage transactions attracted the most capital investment (60%), while late-stage transactions accounted for 40% of investment capital, a significant increase from 15% in the third quarter.
· The median valuation of venture capital transactions rose in the second and third quarters, with the valuation growth of cryptocurrency transactions faster than the overall venture capital industry, but remained flat quarter-on-quarter in the fourth quarter.
· Stablecoin companies raised the most funds, with Tether receiving $600 million in funding from Cantor Fitzgerald, followed by infrastructure and Web3 startups. Web3, DeFi, and infrastructure companies had the most transactions.
· In the fourth quarter of 2024, startups headquartered in the United States received the most investment (46%), and the share of Hong Kong companies increased to 17%. By number of transactions, the United States accounted for 36%, followed by Singapore (9%) and the United Kingdom (8%).
· In terms of fundraising, capital allocators' interest in cryptocurrency-focused venture capital funds has declined to $1 billion, involving 20 new funds.
· At least 10 cryptocurrency venture capital funds raised over $100 million in 2024.
Venture Capital Situation
Transaction Volume and Investment Amount
In the fourth quarter of 2024, venture capitalists invested $3.5 billion (up 46% quarter-on-quarter) in startups focused on cryptocurrency and blockchain, with 416 transactions (down 13% quarter-on-quarter).
In 2024, venture capitalists invested $11.5 billion in cryptocurrency and blockchain startups, with 2,153 transactions.
Investment Amount and Bitcoin Price
Over the past few cycles, there has been a long-term correlation between the Bitcoin price and the investment amount in cryptocurrency startups, but this correlation has not been evident in the past year. Since January 2023, the Bitcoin price has risen significantly, while venture capital activity has not kept pace. The reduced interest of capital allocators in cryptocurrency venture capital and overall venture capital, as well as the cryptocurrency market's preference for the Bitcoin narrative, ignoring many of the hot narratives of 2021, have contributed to this divergence to some extent.
Investment by Stage
In the fourth quarter of 2024, 60% of venture capital investment went to early-stage companies, and 40% went to late-stage companies. In 2024, venture capital firms raised new funds, and funds focused on the cryptocurrency field may still have available capital from the large-scale fundraising a few years ago. Since the third quarter, the proportion of funds going to late-stage companies has increased, partly attributable to the reported $600 million funding Tether received from Cantor Fitzgerald.
The proportion of pre-seed transactions has increased slightly, and remains in good shape compared to previous cycles. We track the proportion of pre-seed transactions to gauge the level of entrepreneurial activity.
Valuation and Trading Volume
In 2023, the valuations of crypto companies backed by venture capital declined significantly, reaching the lowest level since Q4 2020 in Q4 2023. However, as Bitcoin hit a new all-time high in Q2 2024, valuations and trading volumes began to rebound. In Q2 and Q3 2024, valuations reached the highest levels since 2022. The rise in crypto trading volume and valuations in 2024 is consistent with the similar upward trend in the overall venture capital sector, but the rebound in the crypto sector is more robust. In Q4 2024, the median pre-money valuation for transactions was $24 million, and the average transaction size was $4.5 million.
Investment by Category
In Q4 2024, companies and projects in the "Web3//DAO//Gaming" category received the largest share of venture capital funding (20.75%), totaling $771.3 million. The three largest transactions in this category were Praxis, Azra Games, and Lens, raising $525 million, $42.7 million, and $31 million, respectively. 's dominance in crypto venture capital is attributed to the $600 million transaction between and Cantor Fitzgerald, in which the latter acquired a 5% stake in the stablecoin issuer (we classify stablecoin issuers under the broad DeFi category). Although this transaction was not a traditional venture capital structure, we have included it in the statistics. Excluding the transaction, DeFi would rank 7th by investment amount in the quarter.
In Q4 2024, crypto startups building Web3//DAO/ and infrastructure products saw their share of quarterly crypto venture capital increase by 44.3% and 33.5%, respectively, quarter-over-quarter. The increase in capital allocation as a percentage of total deployed capital is mainly due to a significant decline in capital allocation to and crypto AI startups, which have decreased by 85% and 55%, respectively, since Q3 2024.
Further breaking down the larger categories, crypto projects building stablecoins received the largest investment share (17.5%) in Q4 2024, raising a total of $649 million across 9 tracked transactions. However, 's $600 million transaction accounted for a significant portion of the stablecoin company investments in Q4 2024. In Q4 2024, crypto startups developing infrastructure ranked second, raising a total of $592 million across 53 tracked transactions. The three largest crypto infrastructure deals were Blockstream, Hengfeng Company, and Cassava Network, raising $210 million, $100 million, and $90 million, respectively. Following crypto infrastructure, Web3 startups and exchanges received the third and fourth largest amounts of crypto venture capital, totaling $587.6 million and $200 million, respectively. Notably, Praxis was the largest Web3 transaction in Q4 2024 and the second-largest overall, raising a staggering $525 million to build an "internet-native city".
In terms of transaction count, the Web3//DAO//Gaming category led with a 22% share (92 transactions), including 37 gaming transactions and 31 Web3 transactions. In Q4 2024, infrastructure and Trading/Exchange/Investment/Lending categories had 77 and 43 transactions, respectively.
Projects and companies providing crypto infrastructure ranked second in transaction count, accounting for 18.3% (77 transactions) of the total, up 11% quarter-over-quarter. Following crypto infrastructure, projects and companies building Trading/Exchange/Investment/Lending products ranked third in transaction count, accounting for 10.2% (43 transactions) of the total. Notably, the transaction count for crypto companies building wallets and Payments/Rewards products saw the largest quarter-over-quarter increases, at 111% and 78%, respectively, although the wallet and Payments/Rewards startups only had 22 and 13 transactions, respectively, in Q4 2024.
Further breaking down the larger categories, projects and companies building crypto infrastructure had the most transactions (53) across all subcategories. Gaming and Web3-related crypto companies followed closely, completing 37 and 31 transactions, respectively, in Q4 2024, similar to their rankings in Q3 2024.
Investment by Stage and Category
Analyzing the investment amounts and transaction counts by category and stage provides a clearer understanding of the types of companies raising capital in each category. In Q4 2024, the vast majority of funding in the Web3/DAO//, , and categories went to early-stage companies and projects. In contrast, a significant portion of crypto venture capital in , Trading/Exchange/Investment/Lending, and Mining went to later-stage companies.
Analyzing the distribution of investment capital across different stages within each category reveals the relative maturity of the various investment opportunities.
Similar to the crypto venture capital landscape in Q3 2024, a significant portion of the transactions completed in Q4 2024 involved early-stage companies. The crypto venture capital transactions tracked in Q4 2024 included 171 early-stage transactions and 58 later-stage transactions.
Examining the stage distribution within each category helps understand the different development stages of the investable categories.
Investment by Geographic Location
In Q4 2024, 36.7% of the transactions involved companies headquartered in the United States, with Singapore ranking second at 9%, the United Kingdom at 8.1%, Switzerland at 5.5%, and the United Arab Emirates at 3.6%.
Companies headquartered in the United States received 46.2% of all venture capital, down 17 percentage points quarter-over-quarter. In contrast, startups headquartered in Hong Kong saw a significant increase in venture capital funding, accounting for 17.4%. The United Kingdom accounted for 6.8%, Canada for 6%, and Singapore for 5.4%.
Investment Divided by Company Founding Year
Companies and projects founded in 2019 received the largest share of funding, while companies and projects founded in 2024 had the most transactions.
Crypto Venture Capital Fundraising Situation
Fundraising for crypto venture capital funds remains challenging. The macroeconomic environment in 2022 and 2023, as well as the volatility in the crypto market, have caused some allocators to no longer make commitments to crypto venture capital of the same scale as in 2021 and early 2022. In early 2024, investors generally believe that interest rates will decline significantly in 2024, although the rate cuts will not start to materialize until the second half of the year. Total funds allocated to venture capital funds have continued to decline quarter-over-quarter since Q3 2023, although the number of new funds raised for the full year 2024 has increased slightly.
2024 is the softest year for crypto venture capital fundraising since 2020, with 79 new funds raising $5.1 billion, far below the frenetic levels of 2021-2022.
While the number of new funds has increased slightly year-over-year, the decline in allocator interest has also resulted in smaller fund sizes raised by venture firms, with the median and average fund size in 2024 reaching the lowest levels since 2017.
In 2024, at least 10 crypto venture capital funds actively investing in crypto and blockchain startups raised over $100 million for new funds.
Summary
· Market sentiment is improving and investment activity is increasing, but still far below the peaks of previous cycles. While the crypto asset circulation market has clearly recovered from the bottom in late 2022 to early 2023, venture capital activity is still far behind the previous bull market periods. In the bull markets of 2017 and 2021, venture capital activity was closely correlated with the price of crypto assets, but over the past two years, despite the recovery in crypto prices, venture capital activity has remained sluggish. The stagnation of venture capital is caused by multiple factors, including a "barbell market" where Bitcoin dominates the center stage, while the marginal net activity comes mainly from Memecoins, which are difficult to finance and have questionable sustainability. Enthusiasm for projects at the intersection of artificial intelligence and crypto is on the rise, and expected regulatory changes may create opportunities in the areas of stablecoins, DeFi, and asset tokenization.
· Early-stage transactions still dominate. Despite the many obstacles facing venture capital, the continued focus on early-stage transactions is a good sign for the long-term health of the broader crypto ecosystem. Late-stage investments saw some progress in the fourth quarter, 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 invest in innovative ideas. We believe that in 2025, projects and companies in the areas of stablecoins, artificial intelligence, DeFi, tokenization, Layer 2, and Bitcoin-related products are likely to perform well.
· Spot crypto ETPs may put pressure on venture capital funds and startups. In the US, some allocators have made notable investments in spot Bitcoin ETPs, suggesting that some large investors (pension funds, endowments, hedge funds, etc.) may prefer to gain exposure to the space through these large-scale, liquid instruments rather than early-stage venture capital. Interest in spot Ether ETPs is also starting to rise, and if this trend continues, or if new ETPs covering other Layer 1 blockchains are launched, the demand for investment in areas like DeFi or Web3 may flow towards these ETPs rather than venture capital.
· Fund managers still face a challenging environment. While the number of new funds increased slightly year-over-year in 2024, the total funds allocated to crypto venture capital funds were slightly lower than in 2023. The macroeconomic environment continues to pose challenges for allocators, but significant changes in the regulatory environment could reignite allocator interest in the crypto space.
· The US remains dominant in the crypto startup ecosystem. Despite a complex and often hostile regulatory regime, US-based companies and projects still account for the majority of completed transactions and investment amounts. The incoming presidential administration and Congress are expected to be the most crypto-friendly in US history, and we expect the US's dominance to further increase, especially if certain regulatory matters are implemented as expected, such as a stablecoin framework and market structure legislation, which would allow traditional US financial services firms to truly enter the crypto space.
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