Crypto Venture Capital Activity Slows As Early-Stage Investments Dominate In Q3

Galaxy Research‘s latest report shows a continuing cooldown in crypto venture capital activity for Q3, in light of Bitcoin‘s BTC/USD range-bound trading below previous all-time highs.

Venture Capital Investment Tails Off In Q3

According to the report authored by Alex Thorn, head of Firmwide Research, and Gabe Parker, research analyst at Galaxy Research, venture capital investment in crypto startups declined to $2.4 billion in Q3, marking a 20% decrease quarter-over-quarter (QoQ). The number of deals also saw a significant drop, falling 17% QoQ to 478.

The researchers note that 2024 is on track to meet or slightly exceed 2023’s investment levels, with $8 billion invested in crypto startups through the first three quarters. Still, this figure pales in comparison to the crypto VC boom witnessed in 2021 and early 2022.

One of the most striking findings is the shift in investment stages. The report states, “In Q3 2024, 85% of venture capital was invested in early-stage companies, while 15% went to later-stage companies.” This represents the lowest proportion of later-stage deals since Q1 2020, indicating a potential struggle for more mature crypto companies to secure funding.

AI-Related Crypto Projects Stay Hot

Despite the overall cooldown, certain sectors within the crypto space continue to attract significant investment. The report highlights, “Companies and projects in the ‘Trading/Exchange/Investing/Lending’ category raised the largest share of crypto VC capital in Q3 2024 (18.43%), totaling $462.3m in VC fundraising.” Layer-1 projects and infrastructure companies also saw substantial investment.

The report also notes a surge in funding for AI-related crypto projects, with a fivefold increase QoQ. This trend aligns with the broader tech industry’s focus on artificial intelligence.

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Hubs For Crypto VC Investment

Geographically, the United States maintains its dominance in the crypto VC landscape. The report states, “Companies headquartered in the United States pulled in 56% of all venture capital invested, a slight 5% QoQ increase.” Singapore, the United Kingdom, and Hong Kong followed as the next most active hubs for crypto VC investment.

On the fundraising side, the report paints a challenging picture for crypto-focused venture funds. The researchers note, “Fundraising for crypto venture funds continues to be challenging,” with 2024 shaping up to be the weakest year for crypto VC fundraising since 2020. Only 39 new funds have raised a total of $1.95 billion through Q3, significantly below the levels seen in 2021-2022.

The report concludes by highlighting several key trends, including the continued dominance of early-stage deals, the potential impact of Bitcoin ETFs on venture funding, and the ongoing regulatory challenges faced by the crypto industry in the United States.

A report in April showed the crypto VC landscape undergoing significant changes, as VCs adjust their priorities to emerging trends like meme coins.

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