Venture Capital (VC) investments in the cryptocurrency sector rose significantly in early 2024 and maintained momentum through the first half of the year. According to a report from Crypto Koryo, a data analysis platform, both the total investment amounts and the number of projects receiving VC funding since Q4 2023 increased. This surge in funding is a welcome turnaround after a long slump since the sector peaked at $11.1 billion in Q1 2022.
Notably, Crypto Koryo described this increase as potentially signalling “the start of a new wave,” drawing parallels to patterns observed in Q4 2020, which preceded a substantial influx of VC investments.
Some sectors and regions have thrived, attracting substantial investments and driving innovation. On the flip side, other areas have faced some hurdles, leading to a noticeable dip in funding. The reasons why this might be the case are the subject of the article.
Crypto VC Funding Market Outlook in 2024 H1
The first quarter of 2024 set an impressive tone for the year, with venture capital investments in the crypto sector reaching $2.4 billion. This figure represents a robust 40.3% increase from the $1.9 billion invested in the previous quarter, according to BeinCrypto. More importantly, it marks a 44.7% rise in deal volumes, indicating growing confidence among investors. The total number of deals recorded was 518. Standout transactions like Together AI securing $106 million and EigenLayer raising $100 million. Zama, a fully homomorphic encryption platform, also pulled in $73 million.
The momentum gained in Q1 continued to build through the second quarter. According to Galaxy Digital’s report, crypto venture capital investments soared even higher in Q2 2024, reaching $3.2 billion. This represents a substantial 33.3% increase from the already impressive Q1 figures.
The number of deals rose to 577, showing a 28% quarter-over-quarter increase. Early-stage companies were the primary beneficiaries, grabbing 78% of the investments, while later-stage firms received 20%.
Sector and Regional Highlights: Winners and Losers
The blockchain infrastructure sector took the largest share of VC funding in 2024 Q1. This sector pulled in 24% of the total investment capital, thanks in part to EigenLayer’s impressive $100 million funding round. Following closely were the Web3 and trading sectors, which attracted 21% and 17% of the total capital, respectively. Notably, 80% of these funds went to early-stage startups.
In Q2 2024, the Web3 gaming and social media sectors led with $758 million in investments, driven by major deals from projects like Farcaster and Zentry. Infrastructure, trading, and Layer 1 companies also drew significant investment, each securing 15%, 12%, and 12% of the total capital. Also, most Q2 investments were directed at companies founded between 2021 and 2023, highlighting a strong interest in new startups. Ji
Throughout both quarters, the United States was the most active and biggest destination for this capital flow. In Q1, the country secured 37.3% of all deals and 42.9% of the capital. Singapore and the UK also made substantial contributions, with 10.8% and 10.2% of the deals, respectively. Switzerland and Hong Kong also contributed, with 3.5% and 3.2% shares. In Q2, the U.S. was responsible for over 40% of the deals and attracting 53% of the total capital.
Meanwhile, blockchain venture funding in Africa saw a significant decline in 2024 H1, dropping 70% compared to the same period in 2023. CV VC’s report revealed that only $34.7 million was raised in the region in H1 2024, a sharp decrease from $116 million in H1 2023. Despite this, the number of deals in the region grew by 9%, indicating ongoing interest in African blockchain projects.
On a global scale, blockchain funding fell from $10.66 billion in H1 2023 to $5.74 billion in H1 2024, a 64% year-on-year drop. The number of deals also decreased from 1,306 to 678, reflecting a 49% decline.
Why are VCs Investing in the Web3/Crypto Sector in 2024?
Several interconnected factors have contributed to the renewed interest of venture capitalists in funding crypto projects. One key factor was the anticipation tied to the Bitcoin halving event. Several high-profile investment deals were announced in the lead-up to the event.
The timing of these investments is not coincidental. Historically, Bitcoin halvings in 2012, 2016, and 2020 were followed by significant market rallies and price surges. Venture capitalists are betting that the 2024 halving will trigger a similar effect.
The launch of Bitcoin exchange-traded funds (ETFs) also helped attract investment to the sector. Robert Le from PitchBook told Business Standard, “Investors are spending money again” after holding onto their capital over the past 18 months thanks to the approval of Bitcoin exchange-traded funds in January and the rising interest in the intersection of crypto and artificial intelligence.
Beyond the focus on Bitcoin, there’s a broader wave of venture capital flowing into Web3 startups. These big investors are betting on the potential of decentralized applications (dApps), DeFi, and blockchain infrastructure projects to transform various industries. Innovations in the crypto space, such as restaking, modular systems, and Bitcoin layer-2 solutions, have also helped further spark interest.
In April, reports emerged about crypto-focused VC Paradigm negotiating a potential raise of up to $850 million for a new fund. If successful, this would mark the largest fundraising in the crypto space since Andreessen Horowitz’s $4.5 billion raise in May 2022.
Significant funding rounds are empowering innovative startups to scale their operations and introduce new economic models and user experiences. Noteworthy investments include Mezo, a Bitcoin layer-2 network, which raised $21 million in a Series A round led by Pantera Capital on April 9. Mezo offers yields based on token holding times and brands itself as the “Bitcoin Economic Layer.”
Legal victories have also contributed to increasing investor confidence. Ripple’s favourable court ruling and a positive decision for Grayscale in 2023 boosted market confidence. Additionally, the growing optimism around DeFi projects on platforms like Solana has further fueled venture capital activity. These developments have created an environment ripe for investment, with VCs eager to capitalize on the legal and market conditions.
Finally, broader economic conditions, like changing interest rates, influence investment decisions, as lower interest rates make investors seek higher returns in alternative assets
Wrapping Up
As we move into the second half of 2024 and beyond, the crypto VC funding landscape is likely to remain dynamic. The ongoing development of new technologies, regulatory changes, and market conditions will continue to influence investment patterns. For entrepreneurs, investors, and industry observers alike, staying abreast of these trends will be essential in navigating the exciting and ever-changing world of cryptocurrency and blockchain technology.
Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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