2024 Cryptocurrency Venture Capital Panorama Review: Infrastructure Project Financing Active, Fundraising Weak

The cryptocurrency market experienced significant growth in 2024, largely due to important milestones such as the launch of the spot Bitcoin ETF in January and the upcoming U.S. presidential and congressional elections supporting encryption in November. The market capitalization of liquid cryptocurrencies reached $3.4 trillion by the end of the year, an 88% increase year-on-year, with Bitcoin's market cap growing by nearly $1 trillion, approaching $2 trillion. Bitcoin's increase accounted for 62% of the total market growth, and the surge in memecoins and AI tokens also played a boosting role, particularly on the Solana network.

Despite the market recovery, the encryption venture capital sector still faces challenges. Major trends such as Bitcoin, memecoins, and AI tokens offer limited venture capital opportunities. Once-popular areas like DeFi, gaming, the metaverse, and NFTs have failed to attract significant new attention or capital. Infrastructure companies are facing increasingly fierce competition from traditional financial service institutions.

Emerging trends such as stablecoins, tokenization, DeFi-TradFi integration, and the intersection of encryption AI show promise but are still in the early stages. Macroeconomic pressures, especially high interest rates, hinder high-risk allocations, significantly impacting the cryptocurrency venture capital industry. Following the crypto market crash in 2022, integrated VC firms tend to maintain a cautious attitude.

According to the data, in the fourth quarter of 2024, venture capitalists invested $3.5 billion in encryption and blockchain startups, a quarter-on-quarter increase of 46%, but the number of transactions fell to 416, a quarter-on-quarter decrease of 13%. The total investment for the year amounted to $11.5 billion, with a total of 2,153 transactions.

Analyses predict that by 2025, annual investment in the encryption market will exceed $18 billion, with multiple quarters surpassing $5 billion. This represents a significant increase compared to 2024, but still falls short of the levels seen in 2021-2022. The institutionalization of Bitcoin, the rise of stablecoins, and potential regulatory progress in DeFi-TradFi will be key areas of innovation in the future.

Historically, the price of Bitcoin has been strongly correlated with the investment volume in encryption startups, but since January 2023, this correlation has weakened significantly. Bitcoin has reached new highs, while venture capital activity has struggled to keep up. Possible reasons include: institutional investors hesitating due to regulatory uncertainty and market volatility; market narratives favoring Bitcoin, overshadowing other opportunities; and a downturn in the broader venture capital market affecting encryption investments.

The infrastructure sector led the 2024 encryption venture capital, attracting over 610 transactions, reaching $5.5 billion, a year-on-year increase of 57%. The investment focus is on expanding blockchain networks through L2 solutions, improving speed, reducing costs, and scalability. Modular technologies such as data availability and shared sequencers received significant funding, while liquidity staking protocols and developer tools remain key priorities.

NFT and gaming startups raised $2.5 billion, slightly higher than in 2023. Web3 financing shows resilience, raising $3.3 billion in the past two years. DePIN has become a rapidly growing vertical, attracting over 260 deals and nearly $1 billion in financing. DeFi is set for a strong recovery in 2024, with over 530 financings, an increase of 85% year-on-year.

The encryption industry is still highly concentrated in the early financing stage. Early-stage transactions account for 60% of capital investment, while later-stage financing accounts for 40%, which is a significant increase compared to 15% in the third quarter.

The most active investors in 2024 include Animoca Brands (over 100 deals), OKX Ventures (over 80 deals), Cogitent Ventures, Binance Labs, and Foresight Ventures (about 60 deals each). Among angel investors, Polygon founder Sandeep Nailwal is the most active, participating in over 40 investments.

In 2024, venture capital fundraising fell to its lowest level in six years, with 865 funds raising a total of $104.7 billion, a decrease of 18% compared to 2023. The encryption risk financing continues to face pressure due to macroeconomic factors and market fluctuations. 79 new funds raised $5.1 billion, marking the lowest annual total since 2020.

Historically, small funds (under $100 million) have dominated encryption venture capital, but since 2018, there has been a clear shift towards medium-sized funds ($100 million to $500 million). Large funds (over $1 billion) saw rapid growth from 2019 to 2022, but have not appeared in 2023-2024, mainly due to deployment difficulties and increased valuation risks.

Among the 10 funds that raised over $100 million in 2024, the largest closed-end fund is Fund III managed by Paradigm. Notable investment projects include Monad, Farcaster, Berachain, Story Protocol, 0G Labs, and Polymarket.

Key trends include AI integration, DeFi on Bitcoin, and dedicated blockchains. 0G Labs and Sentient are leading in the AI field, while Babylon strengthens Bitcoin's role in DeFi. Monad, Berachain, and Story Protocol are expected to launch their mainnets.

Overall, the landscape of encryption venture capital in 2024 is cautiously optimistic, with a rebound in fundraising activities and increased institutional interest. The shift towards medium-sized funds and the continued dominance of emerging funds indicate that the industry is maturing and adapting to market changes. Despite the short-term decline in venture capital and extended fundraising cycles, the focus on early-stage investments and emerging trends such as AI integration show the potential strength and new momentum that may be on the horizon for the industry.