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2024 Encryption Venture Capital Panorama: Infrastructure Investment Active, Fundraising Cools Down
2024 Overview of Cryptocurrency Venture Capital Risks: Active Infrastructure Projects, Weak Fundraising
The cryptocurrency market experienced significant growth in 2024, primarily driven by key events such as the launch of the spot Bitcoin ETF in January and the supportive U.S. political elections for encryption in November. The market capitalization of liquid cryptocurrencies reached $3.4 trillion by the end of the year, an 88% year-on-year increase, with Bitcoin's market cap growing by nearly $1 trillion, accounting for 62% of the total increase. The Memecoin and AI token craze also fueled market gains, particularly active on the Solana network.
Despite the market recovery, the encryption venture capital sector still faces challenges. Mainstream trends such as Bitcoin, memecoins, and AI tokens offer limited venture capital opportunities, while previously popular areas like DeFi, gaming, the metaverse, and NFTs have failed to attract substantial new funding. Infrastructure companies are under competitive pressure from traditional financial institutions. Emerging trends such as stablecoins, tokenization, DeFi-TradFi integration, and encryption AI crossover hold promise but are still in the early stages. Macroeconomic pressures are also hindering high-risk investments.
According to the data, in the fourth quarter of 2024, encryption and blockchain startups received $3.5 billion in investments, a quarter-over-quarter increase of 46%, but the number of transactions decreased by 13% to 416. The total annual investment amounted to $11.5 billion, with 2,153 transactions. It is expected that by 2025, the annual investment amount is expected to exceed $18 billion, but still below the levels of 2021-2022.
The institutionalization of Bitcoin, the development of stablecoins, and the regulatory progress of the integration of DeFi and TradFi will be key areas of focus for future innovation and capital attention.
Capital Investment and Bitcoin Prices
Historically, the price of Bitcoin has been strongly correlated with the amount of encryption startup investments. However, since January 2023, this correlation has significantly weakened. Bitcoin reached new highs, while venture capital activity struggled to keep pace. Possible reasons include:
Dominant Encryption Venture Capital in the Infrastructure Sector
In 2024, the infrastructure sector attracted over 610 transactions, totaling $5.5 billion, a year-on-year increase of 57%. Investment focuses include L2 scaling solutions, modular technology, liquid staking, and developer tools.
NFT and gaming startups raised $2.5 billion in funding, slightly higher than in 2023. Despite a decline in NFT trading activity, the sector remains in the spotlight. Corporate blockchain financing fell sharply by 69% to $164 million.
Web3 financing shows resilience, raising $3.3 billion in two years. Emerging trends such as SocialFi, encryption AI, and DePIN drive growth, with DePIN attracting over 260 transactions and nearly $1 billion in funding.
DeFi is set for a strong recovery in 2024, with the number of financings increasing by 85% year-on-year to over 530. Bitcoin ecosystem DeFi applications have become a key growth point.
Early-stage financing still dominates investment in the encryption industry, attracting 60% of capital. Late-stage financing has significantly increased from 15% in the third quarter to 40%.
Active Investment Institutions
The most active investment institutions in 2024 include:
Among angel investors, Polygon founder Sandeep Nailwal is the most active, participating in over 40 investments. Paul Taylor and DCF God each participated in more than 30 deals. Solana founders Anatoly Yakovenko, Santiago R. Santos, and Balaji Srinivasan are also significant participants, completing over 25 investments.
Encryption Risk Fund Raising
In 2024, the overall fundraising for venture capital funds is sluggish, with 865 funds raising a total of 10.47 billion USD, a year-on-year decrease of 18%. Affected by macroeconomic conditions and market fluctuations, the fundraising pressure on encryption venture capital funds is significant.
In 2024, 79 new encryption venture capital funds raised a total of 5.1 billion USD, marking a new low since 2020. Both the median and average fund sizes have fallen to their lowest levels since 2017.
Medium-sized fund ( $100 million to $500 million ) shows a clear trend. Large funds ( over $1 billion ) have not appeared in 2023-2024, mainly affected by factors such as deployment difficulty and valuation risk. Some well-known funds like Pantera Capital have expanded their business scope.
The largest closed-end fund in 2024 is Fund III managed by a certain institution.
Investment Projects Worth Paying Attention to in 2024
Future Trends
AI integration, Bitcoin DeFi, and dedicated blockchains will dominate the development of the blockchain field. Projects like 0G Labs and Sentient are leading in the AI space, while Babylon reinforces the role of Bitcoin in DeFi. Monad, Berachain, and Story Protocol are expected to launch their mainnets soon.
Summary
In 2024, the encryption venture capital presents a cautiously optimistic trend, with financing activities rebounding and institutional interest increasing. The proportion of medium-sized funds is rising, and emerging funds continue to dominate, indicating that the industry is maturing and adapting to market changes. Despite facing challenges in the short term, the focus on early-stage investments and emerging trends such as AI highlights the resilience and potential growth momentum of the encryption ecosystem.