2024 Cryptocurrency Venture Capital Landscape Review: Infrastructure Projects Perform Actively, Fundraising Weakens

The cryptocurrency market experienced significant growth in 2024, thanks to key milestones such as the launch of the spot Bitcoin ETF in January and the political elections supporting cryptocurrency in November. The market capitalization of liquid cryptocurrencies skyrocketed by $1.6 trillion, growing 88% year-on-year, reaching $3.4 trillion by the end of the year. Bitcoin's market capitalization increased by nearly $1 trillion, approaching $2 trillion by year-end. Bitcoin's gains accounted for 62% of the total increase, while the surge of memecoins and AI tokens also played a boosting role, dominating on-chain activity, especially on Solana.

Despite the market recovery, the encryption venture capital sector still faces challenges. Major trends such as Bitcoin, memecoins, and AI agent tokens offer limited venture capital opportunities. Once popular areas like DeFi, gaming, metaverse, and NFTs have not attracted significant new attention or capital. Anticipated regulatory reforms put mature infrastructure companies in fierce competition with traditional financial service institutions.

Emerging trends such as stablecoins, tokenization, the integration of DeFi and TradFi, and the intersection of encryption and AI show promise but are still in their infancy. At the same time, macroeconomic pressures like high interest rates hinder high-risk allocations, disproportionately affecting the cryptocurrency venture capital industry. After the collapse of the cryptocurrency market in 2022, comprehensive VC firms have remained cautious and have steered clear of the crypto market.

According to Galaxy Research, venture capital investments in encryption and blockchain startups will reach $3.5 billion in the fourth quarter of 2024, a 46% increase quarter-on-quarter. However, the number of transactions decreased by 13% quarter-on-quarter, totaling 416.

In 2024, the total investment by venture capital in encryption and blockchain startups reached $11.5 billion, with a total of 2,153 transactions.

PitchBook predicts that by 2025, annual investments in the encryption market will exceed $18 billion, with multiple quarters surpassing $5 billion. This represents a significant increase compared to 2024, but is still noticeably lower than the levels seen in 2021 and 2022.

The institutionalization of Bitcoin, the rise of stablecoins, and potential regulatory developments in the integration of DeFi and TradFi are key areas of innovation in the future. These factors, combined with emerging trends, are expected to promote a revival in venture capital activities.

Capital Investment and Bitcoin Price

Historically, the price of Bitcoin has been strongly correlated with the amount of encryption startup investments, but since January 2023, this correlation has noticeably weakened. Bitcoin reached new highs, while venture capital activity struggled to keep up.

Possible reasons:

• Diminished interest in configuration: Institutional investors hesitate due to regulatory uncertainty and market volatility
• Market narrative shift: The current narrative favors Bitcoin, potentially overshadowing other encryption investment opportunities.
• Venture Capital Outlook: Broader venture capital market is sluggish, affecting encryption investment.

Infrastructure Sector Dominates Encryption Venture Capital

In 2024, infrastructure-led encryption venture capital attracted over 610 transactions, reaching $5.5 billion, a year-on-year increase of 57%. The investment focus is on improving speed, reducing costs, and enhancing scalability through L2 scaling blockchain networks. Modular technologies such as data availability and shared sequencers received significant funding, while liquid staking protocols and developer tools remain key priorities.

NFT and gaming startups raised $2.5 billion in funding, slightly above the $2.2 billion in 2023. Despite stable funding, NFT market activity has declined with the appeal of memecoins. Trading activity has matured since the peak of 936 transactions in 2022, but NFTs and gaming remain the focus, with over 610 transactions. Corporate blockchain funding has significantly dropped by 69%, from $536 million in 2023 to $164 million.

Web3 financing has shown resilience, raising $3.3 billion in the past two years, close to the $3.4 billion raised in 2021-2022. The growth is driven by emerging trends such as SocialFi, encryption AI, and DePIN. DePIN has become a rapidly growing vertical, attracting over 260 deals and nearly $1 billion in financing.

DeFi is experiencing a strong recovery in 2024, with over 530 financings amounting to an 85% year-on-year increase. Bitcoin DeFi use cases, including stablecoins, lending protocols, and perpetual protocols, are key drivers.

Except for undisclosed rounds, the encryption industry remains highly concentrated in the early financing stage. Early-stage transactions attract the majority of capital investment, accounting for 60%, while later financing accounts for 40%, a significant increase from 15% in the third quarter.

Most Active Investors

In 2024, Animoca Brands leads with over 100 investments; OKX Ventures follows with over 80; Cogigent Ventures, Binance Labs, and Foresight Ventures each have around 60; The Spartan Group, Big Brain Holdings, and Robot Ventures each have more than 50; Polychain Capital and Amber Group maintain over 40 investment activities.

Among angel investors, Sandeep Nailwal(, the founder of Polygon), is the most active, participating in over 40 investments; Paul Taylor and DCF God each have more than 30; Anatoly Yakovenko(, the founder of Solana), Santiago R. Santos, and Balaji Srinivasan each have over 25; Mert Mumtaz is slightly behind but still active.

Encryption Risk Financing

In 2024, venture capital fundraising fell to its lowest level in six years, with 865 funds raising a total of $104.7 billion, an 18% decrease compared to the $128 billion raised by 1,029 funds in 2023.

Affected by the macroeconomic environment and market fluctuations in 2022-2023, encryption venture capital still faces pressure. Allocators are reducing their commitments to encryption venture capital funds, reflecting a shift in sentiment from the bullish outlook seen in 2021 and early 2022. Although interest rate cuts are expected in 2024, meaningful reductions are not anticipated until the second half of the year, and since the third quarter of 2023, the capital allocation to risk funds has continued to decline quarter by quarter.

In 2024, funding for cryptocurrency venture capital funds has significantly weakened, with 79 new funds raising $5.1 billion, marking the lowest annual total since 2020. The number of new funds has slightly increased year-on-year, but reduced interest from allocators has led to a substantial reduction in fund sizes. The median and average fund sizes in 2024 have dropped to their lowest levels since 2017, highlighting an increasingly challenging funding environment.

Transition to Medium-sized Funds

Historically, small funds ( below 100 million USD ) dominated the encryption venture capital financing, reflecting the early stages of the industry. However, since 2018, there has been a clear shift towards medium-sized funds ( between 100 million and 500 million USD ).

Large funds ( over 1 billion USD ) grew rapidly from 2019 to 2022, but did not appear in 2023 and 2024, reasons include:

• Deployment difficulties: Limited startups require substantial funding
• Valuation risk: Large investments drive up valuations, increasing risk.

Nevertheless, well-known funds such as Pantera Capital and Standard Crypto(5 billion) are still active, expanding their business scope to areas outside of encryption, such as AI. Pantera Fund V will launch its first fundraising on July 1, 2025, with a target of $1 billion.

Among the 10 funds that raised over $100 million in 2024, the largest closed-end fund is Fund III managed by Paradigm.

Investment to Watch in 2024

• Monad: EVM-compatible L1 blockchain, 10,000 transactions per second, 1-second block time, and single-slot finality.
• Farcaster: A social network where users control their data, designed to be "fully decentralized."
• Berachain: Proof of Liquidity ( PoL ) consensus links network security with liquidity supply.
• Story Protocol: Changing IP management through on-chain registration, automatic licensing, and ERC-6551 support.
• 0G Labs: Combining blockchain scalability with AI-driven processes, leading with $250 million in funding.
• Polymarket: A decentralized prediction market that has gained significant attention during the 2024 US elections.

Blockchain Infrastructure:

• EigenLayer: Introducing the restaking market to maximize the use of Ethereum staked assets.
• Babylon: Combines Bitcoin's proof of work with proof of stake blockchain.

Blockchain services:

• Sentient: Utilizing blockchain networks to achieve scalable private AI computing.
• Zama: Secure data processing on the blockchain achieves encryption.

Key Trends for 2024 and Beyond

AI integration, Bitcoin DeFi, and dedicated blockchains dominate the blockchain field. 0G Labs and Sentient are leading in the AI sector, while Babylon strengthens Bitcoin's role in DeFi. Monad, Berachain, and Story Protocol are expected to launch their mainnets soon.

Conclusion

The landscape of crypto venture capital in 2024 is cautiously optimistic, with a rebound in fundraising activities and growing institutional interest. The shift towards mid-sized funds and the continued dominance of emerging funds indicate industry maturation and adaptability to market dynamics. Despite a short-term decline in venture capital and extended fundraising cycles, the sustained focus on early-stage investments and emerging trends like AI integration highlight the resilience of the ecosystem. Overall, the crypto industry demonstrates potential strength, and a new momentum may be on the horizon.