In the third quarter, venture capital funding for the cryptocurrency sector fell by 20% to $2.4 billion compared to the previous quarter. This decline was marked by a notable 17% drop in the number of deals, totaling 478 for the period. Galaxy Digital, a prominent crypto investment firm, attributed this downturn to a “barbell market” effect, where investor focus on either end of the risk spectrum—Bitcoin and highly speculative memecoins—has overshadowed mid-tier crypto projects.
Alex Thorn, head of research at Galaxy Digital, and research analyst Gabe Parker highlighted in their October 15 report that despite the quarterly decline, there was a 21.5% increase in funding compared to the same quarter last year. They pointed to several factors contributing to the current venture stagnation, including the overwhelming market attention to Bitcoin, particularly its new exchange-traded funds (ETFs), and the fleeting interest in memecoins, which pose funding challenges due to their uncertain longevity.
Investment Preferences
The report elaborated that the tepid market conditions in 2024 have resulted from minimal interest from large financial allocators. These conditions are partly due to the high demand for spot Bitcoin ETFs by major investors like pension funds and hedge funds, which has diverted attention from early-stage venture capital investments in the crypto sector. Additionally, the once strong correlation between Bitcoin’s price movements and crypto venture funding levels has notably weakened.
- Portfolio Strategies: Traditional crypto investment portfolios that focus on high-cap cryptocurrencies and speculative tokens have neglected mid-sized utility tokens and projects, which are typically the targets for VC funding.
- Technological Integration: Crypto firms integrating artificial intelligence services have seen significant investment growth, with a five-fold increase in funding over the previous quarter. Notable raises include Sentient, CeTi, and Sahara AI, securing $85 million, $60 million, and $43 million, respectively.
- Geographical Distribution: U.S.-based crypto firms received 56% of the VC funding, accounting for 43.5% of the deals. Other significant contributions came from Singapore and the United Kingdom, followed by the United Arab Emirates and Switzerland.
Projected Market Movements
Galaxy Digital anticipates a potential acceleration in VC funding in the fourth quarter of 2024 and the first quarter of 2025. This optimistic outlook is based on the expectations of falling interest rates and a more relaxed regulatory environment, which could enhance funding conditions and stimulate investment activities in the crypto sector.
| Region | Percentage of Total Funding | Number of Deals | Notable Trends |
|---|---|---|---|
| United States | 56% | 43.5% of deals | Dominant market player |
| Singapore | 8.7% | — | Strong regional player |
| United Kingdom | 6.8% | — | Significant European hub |
| UAE & Switzerland | Remaining top five | — | Emerging markets in crypto venture funding |
The third quarter of 2024 saw a marked decrease in crypto venture capital funding due to a combination of market focus on extreme ends of the investment spectrum and a shift away from early-stage funding in the crypto industry. Despite these challenges, there are signs of potential growth driven by technological advancements and changes in the financial and regulatory landscape. As investors adjust their strategies, the crypto venture scene remains dynamic, reflecting broader economic trends and investor sentiments.
