Crypto venture capital investments have taken a hit in 2024, especially during the third quarter. According to a report from Galaxy Digital, venture capital firms invested $2.4 billion in cryptocurrency startups this quarter through 478 deals. This represents a 20% drop in funding compared to the second quarter and a 17% decrease in the number of deals.
With a total of $8 billion invested in the first three quarters of the year, the crypto industry is expected to receive only slightly more funding in 2024 than it did in 2023. This is a significant decrease from the massive deals seen in 2021 and 2022, when over $30 billion was invested in the industry each year.
Alex Thorn, head of firmwide research at Galaxy Digital, noted that institutional allocators, who are key sources of funding for venture investors, have shown less interest in crypto VC this year. High interest rates, the availability of spot bitcoin and ether ETFs, and the fallout from the industry collapses in 2022 have deterred allocators from investing in crypto ventures.
While early-stage firms received the majority of capital investment, with 85% going to startups that are still developing their products, later-stage companies only received 15% of the capital. The median pre-money valuation for crypto startups in the third quarter was $23 million, with an average deal size of $3.5 million.
Certain sectors of the crypto ecosystem attracted more interest from investors. Crypto exchanges, lending, investing, and trading platforms received over $460 million in VC capital, followed by Layer 1 projects at around $440 million, Web3/Metaverse projects at approximately $360 million, and infrastructure projects at $340 million. Projects combining crypto and artificial intelligence (AI) saw a significant increase in funding, receiving about $270 million in the third quarter.
In terms of geographic distribution, the U.S. led the way in crypto investments, providing 56% of all capital and accounting for 44% of all crypto deals. The United Kingdom followed with 11% of capital and 6.8% of deals, while Singapore-based VCs contributed 7% of capital and 8.7% of deals.
Despite the challenges in fundraising, with only $140 million raised for eight new funds in the third quarter, the crypto industry continues to attract investment. However, 2024 is shaping up to be a weaker year for crypto VC fundraising compared to the frenzy of 2021 and 2022.
As the industry continues to evolve, the competition among crypto VCs for deal flow is increasing, putting entrepreneurs in a stronger position to negotiate valuations. The availability of ETFs and the resurgence of crypto company valuations are influencing investment trends in the market, making it an interesting time for founders to secure investment capital.
In conclusion, while crypto VC investments have decreased in 2024, the industry remains dynamic and continues to attract funding. With changing market conditions and investor preferences, crypto startups and entrepreneurs must adapt to secure the capital needed for growth and innovation.