Crypto VC Market Cools as Q3 Investments Decline

The crypto venture capital (VC) market experienced a decline in investments during the third quarter of 2024, with a 20% drop in capital compared to the previous quarter. According to a report by Galaxy Digital, venture capitalists invested $2.4 billion in crypto and blockchain-focused startups across 478 deals, a 17% decrease from the second quarter. This slowdown in investment activity can be attributed to several factors, including macroeconomic conditions, the emergence of spot crypto exchange-traded funds (ETFs), and the lingering effects of the 2022 crypto market collapses.


Macroeconomic factors, such as high interest rates, have made venture funds less attractive to allocators. As a result, venture investors are struggling to find large sources of capital to launch new fund vehicles, leading to a tightening of the crypto venture investing market. Additionally, the emergence of spot crypto ETFs has provided new avenues for investors to gain exposure to crypto assets, shifting investment strategies away from crypto VC. The hangover from the 2022 crypto market collapses has further impacted investor confidence and capital allocation, with allocators remaining cautious despite the resurgence of liquid crypto.


Despite the overall decline in investment activity, certain sectors within the crypto ecosystem saw increased or decreased interest from investors during Q3 2024. Crypto exchanges, lending, investing, and trading platforms raised 18% of VC capital, totaling over $460 million. Layer 1 projects came in next, raising roughly $440 million, followed by Web3/Metaverse projects at about $360 million and infrastructure projects at $340 million. Notably, projects combining crypto and artificial intelligence (AI) took in about $270 million, a fivefold increase from the previous quarter.


The United States continued to dominate the crypto venture landscape, providing 56% of all capital and accounting for 44% of all crypto deals. The United Kingdom was a distant second in terms of capital, at 11%, and placed third in terms of deals, accounting for 6.8%. Singapore-based VCs provided 7% of all capital but struck 8.7% of all deals.

Fundraising for crypto venture funds proved challenging in Q3 2024, with only $140 million raised across eight new funds. On an annualized basis, 2024 is shaping up to be the weakest year for crypto VC fundraising since 2020, with only 39 new funds raising $1.95 billion, well below the frenzy of 2021-2022.

As the crypto market continues to evolve, investors and allocators must remain vigilant in assessing the opportunities and risks presented by various sectors within the crypto ecosystem. Despite the recent decline in investment activity, the crypto VC market remains an attractive space for those willing to navigate the challenges and capitalize on the potential for growth and innovation.