Galaxy: 2024 Q4 Crypto Venture Capital Review: Which tracks attract new capital inflows?

Preface

2024 was a banner year for the crypto market, with the launch of a spot Bitcoin ETP in January and the election of the most crypto-friendly president and Congress in U.S. history in November. Overall, liquid crypto markets added $1.6 trillion in market cap in 2024, up 88% year-over-year to $3.4 trillion for the year. Bitcoin alone added $1 trillion in market cap, nearly $2 trillion for the year. The 2024 crypto narrative was driven by Bitcoin’s meteoric rise on one hand (accounting for 62% of total market gains), and memes and AI on the other. For much of the year, memes were the hot crypto, with most on-chain activity occurring on Solana. In the second half of the year, tokens operated by AI agents took center stage in the pre-Bitcoin crypto space.

Cryptocurrency venture capital in 2024 remains difficult. None of these major bitcoin, meme, AI agent coins are particularly VC-friendly. Memecoins can be launched with a few clicks of a button, and memecoins and AI agent coins exist almost entirely on-chain, leveraging existing infrastructure primitives. Hot sectors from the last market cycle, such as DeFi, gaming, the metaverse, and NFTs, have either failed to gain market traction or are already built out, requiring less capital, making new startups more competitive. Crypto market infrastructure and gaming are largely built out and are now in late stages, and with expected changes in US regulation under the next administration, these sectors 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 meta-currencies range from immature to very nascent: among them, stablecoins, tokenization, the integration of DeFi and TradFi, and the overlap of crypto and AI stand out.

Macro and broader market forces also continue to present headwinds. The high interest rate environment continues to weigh on the VC industry, with allocators less willing to take risks further down the risk curve. This phenomenon has squeezed the entire VC industry, but the crypto VC industry may be particularly impacted given its risk profile. Meanwhile, large, integrated VC firms continue to mostly avoid the space, perhaps still feeling cautious following several high-profile VC bankruptcies in 2022.

Thus, while there are significant opportunities ahead, both through the resurgence of existing origins and narratives and the emergence of new ones, crypto venture capital remains competitive and subdued compared to the frenzy of 2021 and 2022. Deals and investment capital are both up, but new fund counts are stagnant and capital allocated to venture funds is down, creating a particularly competitive environment that favors founders in negotiating valuations. Broadly speaking, venture capital remains well below levels seen in prior market cycles.

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

summary

• In Q4 2024, venture capital investment in cryptocurrency startups was $3.5 billion (up 46% QoQ) across 416 deals (down 13% QoQ).

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

• Early-stage deals received the most capital invested (60%), while late-stage deals accounted for 40% of invested capital, a significant increase from 15% in the third quarter.

• Median valuations of venture capital deals increased in the second and third quarters, with valuations of cryptocurrency-specific deals growing faster than the venture capital industry as a whole, but were flat quarter-over-quarter in the fourth quarter.

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

• In the fourth quarter, most investments went to startups headquartered in the United States (46%), while Hong Kong companies accounted for 17% of all invested capital. In terms of number of deals, the United States led with 36%, followed by Singapore (9%) and the United Kingdom (8%).

• On the fundraising front, investor interest in cryptocurrency-focused venture capital funds fell to $1 billion across 20 new funds.

• In 2024, at least 10 cryptocurrency venture capital funds raised more than $100 million.

Venture Capital

Number of transactions and investment capital

In Q4 2024, venture capitalists invested $3.5 billion (up 46% QoQ) in 416 deals (down 13% QoQ) in cryptocurrency and blockchain-focused startups.

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 prices and capital invested in crypto startups, but this correlation has struggled to recover over the last year. Since January 2023, Bitcoin has risen sharply while venture capital activity has struggled to keep pace. Weaker allocator interest in crypto venture and venture capital broadly, combined with a crypto market narrative that favors Bitcoin and ignores many of the hot narratives of 2021, can partially explain this difference.

Phased investment

In the fourth quarter of 2024, 60% of venture capital was invested in early-stage companies, while 40% went to later-stage companies. Venture capital firms raised new funds in 2024, while crypto-native funds may still have access to funds from large financings from a few years ago. Starting in the third quarter, more capital flowed to later-stage companies, which can partially explain Tether raising $600 million from Cantor Fitzgerald.

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

Valuation and deal size

Venture-backed cryptocurrency company valuations fell sharply in 2023, reaching their lowest level since Q4 2020 in Q4 2023. However, valuations and deal sizes began to rebound in Q2 2024 as Bitcoin hit a new all-time high. Valuations reached their highest levels since 2022 in Q2 and Q3 2024. The growth in cryptocurrency deal size and valuations in 2024 was consistent with similar growth in the venture capital space as a whole, although the rebound in crypto was stronger. The median pre-money valuation for deals in Q4 2024 was $24 million, and the average deal size was $4.5 million.

Investment Type

Companies and projects in the “Web3/NFT/DAO/Metaverse/Gaming” category raised the largest share (20.75%) of crypto VC capital in Q4 2024, totaling $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 percentage of total crypto VC investment is attributed to Tether’s $600 million deal with Cantor Fitzgerald , which took a 5% stake in the company (stablecoin issuers fall into our Advanced DeFi category). While this deal was not a traditional VC structured deal, we included it in our dataset. If Tether’s deal were removed, the DeFi category would have ranked 7th in terms of investment in Q4.

In Q4 2024, crypto startups building Web3/NFT/DAO/Metaverse and infrastructure products saw their share of total quarterly crypto venture funding grow by 44.3% and 33.5% respectively. The increase in capital allocation as a percentage of total capital deployment was primarily attributable to a significant quarter-over-quarter decline in crypto venture capital allocations to Layer 1 and crypto AI startups, which have fallen by 85% and 55% respectively since Q3 2024.

If we break down the broad categories in the chart above into more granular segments, crypto projects building stablecoins raised the largest share of crypto VC funding in Q4 2024 (17.5%), totaling $649 million across 9 tracked deals. However, Tether’s $600 million deal represents the majority of total capital invested in stablecoin companies in Q4 2024. Crypto startups developing infrastructure raised the second-most VC capital at $592 million (16%) across 53 tracked deals in Q4 2024. The top three 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 second largest deal in Q4 2024, raising a whopping $525 million to build an “internet-native city.”

In terms of transaction count, Web3/NFT/DAO/Metaverse/Games accounted for 22% of transactions (92), with 37 Game transactions and 31 Web3 transactions being the driving factors. The largest Game transaction in Q4 2024 was Azra Games, which raised $42.7 million in Series A funding. It was followed by Infrastructure and Trading/Exchange/Investing/Lending, with 77 and 43 transactions respectively in Q4 2024.

Projects and companies providing crypto infrastructure ranked second in terms of deal count, accounting for 18.3% (77) of total deals, up 11 percentage points month-over-month. Following crypto infrastructure, projects and companies building trading/exchange/investing/lending products ranked third in terms of deal count, accounting for 10.2% (43) of total deals. Notably, crypto companies building wallets and payment/rewards products saw the largest month-over-month increases in deal volume, at 111% and 78%, respectively. While these month-over-month increases are large in percentage terms, wallet and payment/rewards startups only accounted for 22 and 13 deals, respectively, in Q4 2024.

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

Investments by stage and category

Breaking down investment capital and deal count by category and stage provides a clearer picture of what types of companies in each category are raising capital. In Q4 2024, the vast majority of capital in Web3/DAO/NFT/Metaverse, Layer 2s, and Layer 1s went to early-stage companies and projects. In contrast, a large portion of crypto VC funding invested in DeFi, Trading/Exchanges/Investing/Lending, and Mining went to late-stage companies. This is to be expected given the relative maturity of the latter compared 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 VC capital invested in Q3 2024, a large portion of the deals completed in Q4 2024 involved early-stage companies. Crypto VC deals tracked in Q4 2024 included 171 early-stage deals and 58 late-stage deals.

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

Investment by Geography

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

Companies headquartered in the United States attracted 46.2% of all venture capital, down 17 percentage points from the previous month. As a result, venture capital capital allocation to startups headquartered in Hong Kong increased significantly, reaching 17.4%. The United Kingdom was 6.8%, Canada was 6%, and Singapore was 5.4%.

Group Investment

Companies and projects founded in 2019 accounted for the largest share of capital, while those founded in 2024 saw the highest number of deals.

Venture Capital Financing

Fundraising for crypto venture funds remains challenging. The macro environment and crypto market volatility in 2022 and 2023 have made some allocators reluctant to make the same level of commitment to crypto venture investors as they did in 2021 and early 2022. At the beginning of 2024, investors generally believed that interest rates would fall significantly in 2024, although the rate cuts did not begin to materialize until the second half of the year. Total capital allocated to venture funds has continued to decline month-over-month since the third quarter of 2023, despite an increase in the number of new funds throughout 2024.

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

While the number of new funds did increase slightly year-over-year, the decline in allocator interest also resulted in smaller funds raised by venture capital firms, with the median and average fund sizes in 2024 reaching their lowest levels since 2017.

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

Summarize

• Sentiment is improving and activity is increasing, though both remain well below prior highs. While liquid crypto asset markets have recovered significantly from late 2022 and early 2023, venture capital activity remains well below prior bull runs. The 2017 and 2021 bull runs were marked by a high correlation between venture capital activity and liquid crypto asset prices, but over the past two years, activity has been sluggish while crypto has rebounded. The stagnation in venture capital is due to a variety of factors, including a “barbell market” that has put Bitcoin (and its new ETF) center stage, and marginal net new activity from meme coins, which have been difficult to raise funds and have questionable longevity. Enthusiasm for projects at the intersection of AI and crypto is growing, and expected regulatory changes could open the door to opportunities in stablecoins, DeFi, and tokenization.

• Early-stage deals continue to lead the way. Despite headwinds for venture capital, interest in early-stage deals continues to bode well for the long-term health of the broader crypto ecosystem. The late-stage deal cohort made progress in Q4, but primarily due to Cantor Fitzgerald’s $600M investment in Tether. Nonetheless, entrepreneurs continue to find willing investors for new and innovative ideas. We believe projects and companies building stablecoins, AI, DeFi, tokenization, L2, and Bitcoin-related products will perform well in 2025.

• Spot ETPs could put pressure on funds and startups. Several high-profile investments by US allocators in spot Bitcoin ETPs suggest that some large investors (pensions, endowments, hedge funds, etc.) may be gaining exposure to the industry through large liquid vehicles rather than turning to early-stage venture capital. Interest in spot Ethereum ETPs has already begun to increase, and if this continues, or even if new ETPs are launched covering other alternative layer 1 blockchains, demand for niches such as DeFi or Web3 may flow to ETPs rather than the venture capital complex.

• Fund managers still face a difficult environment. While the number of new funds in 2024 increased slightly year-over-year, total capital allocated to crypto VC funds was slightly lower than in 2023. The macroeconomic environment continues to create headwinds for allocators, but significant changes in the regulatory environment could reignite allocators’ interest in the space.

• The United States continues to dominate the crypto startup ecosystem. Despite a very tricky and often hostile regulatory regime, U.S.-based companies and projects still account for the majority of completed deals and the majority of invested capital. The new presidential administration and Congress will be the most pro-cryptocurrency in history, and we expect U.S. dominance to increase, especially if certain regulatory matters solidify 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.