Original article by: Alex Thorn, Gabe Parker, Galaxy
Original translation: Luffy, Foresight News
introduction
2024 is a landmark year for the cryptocurrency market, with the launch of spot Bitcoin exchange-traded funds (ETPs) at the beginning of the year, and the United States ushering in the most cryptocurrency-supportive president and Congress in history in November, which brought the year to a successful conclusion. In 2024, the total market value of the cryptocurrency circulation market increased by $1.6 trillion, an increase of 88% year-on-year, reaching $3.4 trillion at the end of the year. The market value of Bitcoin alone increased by $1 trillion, approaching $2 trillion at the end of the year. The development trend of the cryptocurrency market in 2024 was driven by the rapid rise of Bitcoin on the one hand, and the influence of Memecoin and artificial intelligence-related cryptocurrencies on the other. For most of the year, Memecoin was popular, and most on-chain activities occurred on the Solana blockchain. In the second half of the year, artificial intelligence agent (AI agents) cryptocurrencies became a new focus.
In 2024, venture capital (VC) in the cryptocurrency space remains difficult. Bitcoin, Memecoin, AI agents, and other mainstream hotspots are not very suitable for venture capital. Memecoin can be launched with just a few clicks of a button, and Memecoin and AI agent-related cryptocurrencies run almost entirely on-chain, leveraging existing infrastructure primitives. Hot areas of the last market cycle, such as decentralized finance (DeFi), games, the metaverse, and non-fungible tokens (NFTs), have either failed to attract much market attention or have been built, requiring less capital and facing more intense competition for new startups. Most businesses related to cryptocurrency market infrastructure have been built and entered the late development stage, and with the expected regulatory changes from the next US government, these areas may face competition from traditional financial services intermediaries. There are signs that some new hotspots are emerging and may become important drivers of new capital inflows, but most of them are immature or even in their infancy: among the more prominent ones are stablecoins, tokenization, the integration of DeFi and traditional finance (TradFi), and the intersection of cryptocurrency and AI.
Macroeconomic and broader market forces also pose headwinds. The high interest rate environment continues to weigh on the venture capital industry, with allocators less willing to take on higher risks. This phenomenon has squeezed the entire venture capital industry, and the cryptocurrency venture capital sector may be more severely affected due to its higher risk perception. At the same time, large, comprehensive venture capital firms have mostly remained evasive in the space, perhaps still reeling from the collapse of several well-known venture-backed companies in 2022.
Thus, while there are significant opportunities ahead, either through the resurgence of existing primitives and narratives or the emergence of new ones, crypto venture capital remains highly competitive and relatively muted compared to the frenzy of 2021 and 2022. The number of deals and investment dollars are up, but new funds are stagnant and less capital is being allocated to venture funds, creating a particularly competitive environment that favors founders in valuation negotiations. Overall, venture capital remains well below levels seen in the last market cycle.
However, the increasing institutionalization of Bitcoin and digital assets, the growth of stablecoins, and the new regulatory environment that may eventually lead to the convergence of DeFi and TradFi all point to new opportunities for innovation. We expect that venture capital activity and attention may rebound significantly in 2025.
Summary of key points
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 capital firms invested $11.5 billion in cryptocurrency and blockchain startups across 2,153 deals.
Early-stage deals attracted the most capital invested (60%), while late-stage deals accounted for 40% of invested capital, a significant increase from 15% in the third quarter.
The median valuation of venture capital deals increased in the second and third quarters, with valuations of cryptocurrency deals growing faster than the overall venture capital industry, but remained flat in the fourth quarter.
Stablecoin companies raised the most funding, with Tether securing $600 million from Cantor Fitzgerald, followed by infrastructure and Web3 startups. Web3, DeFi, and infrastructure companies saw the most deals.
In the fourth quarter of 2024, US-based startups received the most investment funding (46%), while Hong Kong companies received 17% of investment. In terms of deal volume, the US led the way with 36%, followed by Singapore (9%) and the UK (8%).
On the fundraising front, capital allocators’ interest in cryptocurrency-focused venture capital funds fell to $1 billion across 20 new funds.
At least 10 cryptocurrency venture capital funds will raise more than $100 million in 2024.
Venture capital situation
Number of transactions and investment amount
In Q4 2024, venture capitalists invested $3.5 billion (up 46% QoQ) in 416 deals (down 13% QoQ) in startups focused on cryptocurrencies and blockchain.
Throughout 2024, venture capitalists invested $11.5 billion in cryptocurrency and blockchain startups across 2,153 deals.
Investment amount and Bitcoin price
The long-standing correlation between Bitcoin prices and the amount of money invested in crypto startups over the past few cycles has not been as strong over the past year. Since January 2023, Bitcoin prices have risen sharply, while venture capital activity has not kept pace. The divergence is partly explained by the waning interest of allocators in crypto venture capital and venture capital overall, coupled with the crypto market favoring the Bitcoin narrative and ignoring many of the popular narratives of 2021.
Investment by stage
In the fourth quarter of 2024, 60% of venture capital was invested in early-stage companies and 40% in late-stage companies. Venture capital firms raised new funds in 2024, and funds focused on the cryptocurrency field may still have available funds left over from large fundraisings a few years ago. The increase in the proportion of funds received by late-stage companies since the third quarter can be partially attributed to Tether’s reported $600 million financing from Cantor Fitzgerald.
The proportion of pre-seed round transactions has increased slightly, and remains in good shape compared with previous cycles. We measure the activity of entrepreneurial activities by tracking the proportion of pre-seed round transactions.
Valuation and deal size
Venture-backed cryptocurrency company valuations fell sharply in 2023, falling in Q4 2023 to their lowest level since Q4 2020. However, as Bitcoin hit an all-time high in Q2 2024, valuations and deal sizes began to rebound. In Q2 and Q3 2024, valuations reached their highest levels since 2022. The rise in cryptocurrency deal size and valuations in 2024 is in line with a similar upward trend in the overall venture capital sector, although the rebound in the cryptocurrency sector has been stronger. The median pre-money valuation of transactions in Q4 2024 was $24 million, and the average deal size was $4.5 million.
Investments by Category
In Q4 2024, companies and projects in the “Web3/NFT/DAO/Metaverse/Games” category received the largest share of venture capital funding (20.75%), totaling $771.3 million. The three largest deals in this category were Praxis, Azra Games, and Lens, with financing amounts of $525 million, $42.7 million, and $31 million, respectively. DeFi’s dominance in total crypto venture capital investment is attributed to Tether’s $600 million deal with Cantor Fitzgerald, which received a 5% stake in the company (stablecoin issuers fall into our broad DeFi category). Although this deal was not a traditional venture capital structured deal, we included it in the statistics. Excluding the Tether deal, the DeFi category would drop to 7th place by investment amount in Q4.
Crypto startups building Web3/NFT/DAO/Metaverse and infrastructure products accounted for 44.3% and 33.5% of total quarterly crypto venture funding, respectively, in Q4 2024. The increase in capital allocation as a percentage of total deployed capital was primarily due to a significant quarter-over-quarter decline in capital allocation to Layer 1 and Crypto AI startups, which fell 85% and 55%, respectively, since Q3 2024.
Breaking down the larger categories further, crypto projects building stablecoins received the largest share of investment in Q4 2024 (17.5%), raising a total of $649 million across nine deals tracked. However, Tether’s $600 million deal accounted for the majority of total investment in stablecoin companies in Q4 2024. Crypto startups developing infrastructure received the second-highest amount of venture capital funding in Q4 2024, raising a total of $592 million across 53 deals tracked. The three largest crypto infrastructure deals were Blockstream, Hengfeng, and Cassava Network, raising $210 million, $100 million, and $90 million, respectively. Following crypto infrastructure, Web3 startups and exchanges received the third and fourth highest amounts of funding from crypto VCs, totaling $587.6 million and $200 million, respectively. Notably, Praxis was the largest Web3 deal in Q4 2024 and the second largest deal overall, raising a whopping $525 million to build an “internet-native city.”
In terms of transaction volume, the Web3/NFT/DAO/Metaverse/Game category leads with 22% of transactions (92 transactions), including 37 game transactions and 31 Web3 transactions. In the fourth quarter of 2024, the Infrastructure and Transaction/Exchange/Investment/Lending categories had 77 and 43 transactions, respectively.
Projects and companies providing crypto infrastructure ranked second in terms of deal count, accounting for 18.3% (77) of the total, up 11% QoQ. After crypto infrastructure, projects and companies building trading/exchange/investing/lending products ranked third in terms of deal count, accounting for 10.2% (43) of the total. Notably, cryptocurrency companies building wallets and payment/rewards products saw the largest QoQ increases in deal count, at 111% and 78%, respectively. Despite the large QoQ percentage increases, wallets and payment/rewards startups were only involved in 22 and 13 deals, respectively, in Q4 2024. 
Breaking down the larger categories further, projects and companies building crypto infrastructure saw the most deals of all segments (53). Gaming and Web3-related cryptocurrency companies followed closely behind, with 37 and 31 deals, respectively, in Q4 2024, nearly identical rankings to Q3 2024.
Investments by stage and category
Breaking down investment amounts and deal counts by category and stage provides a clearer picture of what types of companies are raising capital in each category. In the fourth quarter of 2024, the vast majority of funding in the Web3/DAO/NFT/Metaverse, Layer 2, and Layer 1 sectors went to early-stage companies and projects. In contrast, a large portion of cryptocurrency venture capital funding invested in DeFi, trading/exchange/investing/lending, and mining sectors went to later-stage companies.
Analyzing the distribution of investment funds at different stages within each category can reveal the relative maturity of various investment opportunities.
Similar to the crypto VC landscape in Q3 2024, a large portion of 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.
Studying the percentage of deals at each stage within each category helps to understand the different stages of development of each investable category. 
Investment by Geography
In the fourth quarter of 2024, 36.7% of deals involved companies headquartered in the United States, with Singapore in second place at 9%, the United Kingdom at 8.1%, Switzerland at 5.5% and the UAE at 3.6%.
Companies headquartered in the United States received 46.2% of all venture capital, a decrease of 17 percentage points from the previous month. In contrast, startups headquartered in Hong Kong received a significant increase in venture capital funding, accounting for 17.4%. The United Kingdom accounted for 6.8%, Canada accounted for 6%, and Singapore accounted for 5.4%.
Investment by year of company establishment
Companies and projects founded in 2019 received the largest share of funding, while those founded in 2024 saw the highest number of deals.
Venture Capital Fund Raising
Fundraising for crypto venture funds remains challenging. The macro environment in 2022 and 2023, as well as the volatility in the crypto markets, has prevented some allocators from making the same size commitments to crypto venture 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 become apparent until the second half of the year. Since the third quarter of 2023, the total amount of funds allocated to venture capital funds has continued to decline month-on-month, despite an increase in the number of new funds throughout 2024.
2024 was the weakest year for cryptocurrency venture capital fundraising since 2020, with 79 new funds raising a total of $5.1 billion, well below the frenzy levels of 2021-2022.
Although the number of new funds increased slightly year-on-year, the decline in interest among fund allocators also led to smaller fund sizes raised by venture capital firms, with the median and average size of funds in 2024 falling to their lowest levels since 2017.
In 2024, at least 10 cryptocurrency venture capital funds actively investing in cryptocurrencies and blockchain startups raised more than $100 million for new funds.
Summarize
Market sentiment is improving and investment activity is increasing, but it is still far below the highs of previous cycles. Although the crypto asset circulation market has recovered significantly since the end of 2022 and the beginning of 2023, venture capital activity is still far below the previous bull market. In the bull markets of 2017 and 2021, venture capital activity was closely related to the circulation price of crypto assets, but in the past two years, despite the recovery of cryptocurrency prices, venture capital activity has remained sluggish. The stagnation of venture capital is caused by a variety of factors, including a barbell market, that is, Bitcoin occupies center stage, and the marginal net activity of new projects mainly comes from Memecoin, which is difficult to raise funds and has questionable sustainability. The markets enthusiasm for projects at the intersection of artificial intelligence and cryptocurrency is rising, and the expected regulatory changes may bring opportunities in the fields of stablecoins, DeFi, and asset tokenization.
Early-stage deals still dominate. Despite the many obstacles facing venture capital, the focus on early-stage deals still bodes well for the long-term health of the broader cryptocurrency ecosystem. Late-stage investments made some progress in the fourth quarter, but this was mainly due to Cantor Fitzgeralds $600 million investment in Tether. Even so, entrepreneurs are still able to find investors willing to invest in innovative ideas. We believe that in 2025, projects and companies in stablecoins, artificial intelligence, DeFi, tokenization, Layer 2, and Bitcoin-related products are expected to perform well.
Spot ETFs (ETPs) could put pressure on VC funds and startups. In the US, some allocators have made notable investments in spot Bitcoin ETFs, suggesting that some large investors (pensions, endowments, hedge funds, etc.) may prefer to get exposure to the space through these large, liquid vehicles rather than early-stage VC investments. Interest in spot Ethereum ETFs has also started to rise, and if this continues, or new ETFs covering other Layer 1 blockchains are launched, investment demand in areas such as DeFi or Web3 could flow to these ETFs rather than VC.
Fund managers still face a difficult environment. While the number of new funds in 2024 is slightly higher year-over-year, the total amount of funds allocated to cryptocurrency venture capital funds is slightly lower than in 2023. The macro environment continues to create headwinds for fund allocators, but significant changes in the regulatory environment could rekindle fund allocators interest in the crypto space.
The United States remains dominant in the cryptocurrency startup ecosystem. Despite an extremely complex and often hostile regulatory regime, companies and projects headquartered in the United States still account for the majority of completed deals and investment dollars. With the incoming presidential administration and Congress expected to be the most crypto-friendly in U.S. history, we expect the U.S. dominance to increase further, especially if certain regulatory matters materialize as expected, such as stablecoin frameworks and market structure legislation, which would allow traditional U.S. financial services companies to truly enter the crypto space.
