2024 Cryptocurrency Venture Capital Market Review: Active Financing for Infrastructure Projects, Weak Fundraising

In 2024, driven by the launch of spot Bitcoin ETFs and changes in the U.S. political environment, the encryption market achieved significant growth. The market capitalization of liquid cryptocurrencies increased by 88% to $3.4 trillion, with Bitcoin's market capitalization approaching $2 trillion, accounting for 62% of the total increase. The meme coin and AI token craze also boosted the market's rise, especially performing actively on the Solana chain.

However, the encryption venture capital field still faces challenges. Mainstream trends such as Bitcoin, meme coins, and AI tokens offer limited investment opportunities. The once-popular fields like DeFi, gaming, metaverse, and NFTs are losing their appeal. Mature infrastructure companies are also facing competitive pressure from traditional financial institutions.

Emerging trends such as stablecoins, asset tokenization, the integration of DeFi with traditional finance, and the intersection of encryption AI show promise, but are still in the early stages. At the same time, macroeconomic pressures are limiting high-risk investment allocations, adversely affecting the encryption venture capital industry. Most comprehensive VCs remain cautious.

According to the data, in the fourth quarter of 2024, encryption and blockchain startups received $3.5 billion in investment, a quarter-on-quarter increase of 46%, but the number of transactions decreased by 13% to 416. The total investment for the year was $11.5 billion, with a total of 2,153 transactions.

Analyses predict that by 2025, the annual investment in the encryption market will exceed 18 billion USD, with multiple quarters surpassing 5 billion USD. The institutionalization of Bitcoin, the development of stablecoins, and the integration of DeFi with traditional finance will be key areas of future innovation.

Historically, the price of Bitcoin has been highly correlated with the investment scale in encryption startups, but this correlation has significantly weakened since 2023. Possible reasons include institutional investors hesitating due to regulatory uncertainty, market narratives skewing towards Bitcoin, and a sluggish overall venture capital market.

In 2024, the infrastructure sector led encryption venture capital, attracting over 610 deals with a total amount of $5.5 billion, a year-on-year increase of 57%. Investment focuses include Layer 2 scaling solutions, modular technology, liquid staking protocols, and developer tools. NFT and gaming startups raised $2.5 billion, slightly higher than in 2023. Corporate blockchain financing fell significantly by 69% to $164 million.

The Web3 sector has raised $3.3 billion in the past two years, nearing the levels of 2021-2022. Emerging trends such as SocialFi, encryption AI, and DePIN have driven growth. DeFi is set for a strong recovery in 2024, with the number of financing deals increasing by 85% year-on-year, and Bitcoin-based DeFi applications becoming a key driving force.

From the perspective of the financing stage, the encryption industry is still highly concentrated in the early financing stage. Early-stage transactions account for 60% of total investment, while later-stage financing accounts for 40%, a significant increase from 15% in the previous quarter.

Among active investors, Animoca Brands ranks first with over 100 investments, followed by OKX Ventures with more than 80. Institutions like Cogitent Ventures, Binance Labs, and Foresight Ventures remain active as well. Among angel investors, Polygon founder Sandeep Nailwal is the most active, participating in over 40 investments.

In 2024, the overall venture capital market raised funds at a six-year low, with 865 funds raising a total of 104.7 billion USD, a year-on-year decrease of 18%. The encryption venture capital funds are even more sluggish, with only 79 new funds raising 5.1 billion USD, marking the lowest since 2020. The median and average fund sizes have both dropped to the lowest levels since 2017.

In terms of fund size, the proportion of medium-sized funds between 1-5 billion USD has significantly increased. Large funds over 10 billion USD have not appeared in 2023-2024, mainly due to challenges such as deployment difficulties and valuation risks. However, well-known funds like Pantera Capital are still actively expanding their business scope.

Investment projects to watch in 2024 include: high-performance blockchain Monad, decentralized social network Farcaster, liquidity proof-based public chain Berachain, intellectual property management protocol Story Protocol, AI-integrated scaling project 0G Labs, and prediction market Polymarket.

Overall, in 2024, encryption venture capital shows a cautiously optimistic trend, with financing activities rebounding and institutional interest gradually increasing. The rising proportion of medium-sized funds and the continuous emergence of new funds indicate that the industry is maturing. Although there has been a decline in venture capital in the short term and fundraising cycles have lengthened, the continued focus on early-stage projects and the emergence of new trends such as AI highlight the potential growth momentum of the industry.