2024 Comprehensive Review of the Encryption Venture Capital Market: Active Financing for Infrastructure Projects, Weak Fundraising

In 2024, the encryption market experienced significant growth, primarily due to the launch of spot Bitcoin ETFs and a supportive political environment for encryption. The market capitalization of liquid cryptocurrencies reached $3.4 trillion by the end of the year, marking an 88% year-on-year increase. Bitcoin's market cap approached $2 trillion, accounting for 62% of the total increase. The surge in Memecoins and AI tokens also fueled market growth, particularly active on the Solana network.

Despite the market recovery, the encryption venture capital space still faces challenges. Major trends such as Bitcoin, memecoins, and AI tokens offer limited venture capital opportunities. Traditional hot areas like DeFi, gaming, the metaverse, and NFTs have failed to attract significant new capital. Infrastructure companies are under competitive pressure from traditional financial institutions.

Emerging trends such as stablecoins, tokenization, DeFi-TradFi integration, and the intersection of encryption AI show potential but are still in the early stages. Macroeconomic pressures, particularly in a high interest rate environment, have suppressed high-risk investments, with a particularly noticeable impact on crypto venture capital. Comprehensive VC firms have generally maintained a cautious attitude following the turmoil in the crypto market in 2022.

According to the data, in the fourth quarter of 2024, financing for encryption and blockchain startups reached $3.5 billion, a quarter-on-quarter increase of 46%, but the number of transactions decreased by 13% to 416. The total financing for the year amounted to $11.5 billion, with a total of 2,153 transactions. It is expected that the annual investment in 2025 will exceed $18 billion, with several quarters possibly surpassing $5 billion, but still below the levels of 2021-2022.

The institutionalization of Bitcoin, the development of stablecoins, and the regulatory progress of DeFi-TradFi integration are seen as key areas for future innovation and are expected to drive a revival in venture capital activity.

The relationship between capital investment and Bitcoin price

Historically, the price of Bitcoin has shown a strong correlation with the investment volume in encryption startups. However, since January 2023, this correlation has significantly weakened. Bitcoin reached new highs, while venture capital activity struggled to keep pace.

Possible reasons include:

• Institutional investors are hesitant due to regulatory uncertainty and market volatility.
• The market narrative is biased towards Bitcoin, overshadowing other encryption investment opportunities.
• The overall downturn in the risk capital market has impacted encryption investments.

leading encryption venture capital in the infrastructure sector

In 2024, the infrastructure sector attracted over 610 transactions, with financing reaching $5.5 billion, a year-on-year increase of 57%. Investment focuses include L2 scaling solutions, modular technologies (such as data availability, shared sequencers), liquid staking protocols, and developer tools.

NFT and gaming startups raised $2.5 billion, slightly higher than in 2023. Although activity in the NFT market has declined, the sector remains in the spotlight. Corporate blockchain funding fell sharply by 69% to $164 million.

Web3 financing has shown resilience, raising $3.3 billion in the past two years. Emerging trends such as SocialFi, encryption AI, and DePIN have driven growth. DePIN has become a rapidly growing vertical, attracting nearly $1 billion in funding.

DeFi experienced a strong recovery in 2024, completing over 530 financing rounds, an increase of 85% year-on-year. Bitcoin-based DeFi applications became key growth points.

Financing Stage Distribution

Except for undisclosed rounds, the encryption industry remains highly concentrated in the early financing stage. Early-stage transactions account for 60% of total capital investment, while later-stage financing accounts for 40%, a significant increase compared to the previous quarter.

Active Investor

The most active investment institutions in 2024 include:

• Animoca Brands (over 100 investments)
• OKX Ventures (over 80 transactions)
• Cogigent Ventures, Binance Labs, and Foresight Ventures (approximately 60 transactions)
• The Spartan Group, Big Brain Holdings, and Robot Ventures (more than 50 transactions)
• Polychain Capital and Amber Group (over 40 transactions)

Active angel investors include:

• Sandeep Nailwal (Founder of Polygon, over 40 transactions)
• Paul Taylor and DCF God (over 30 transactions each)
• Anatoly Yakovenko (founder of Solana), Santiago R. Santos, and Balaji Srinivasan (each with over 25 transactions)

encryption risk fund raising

In 2024, overall fundraising for venture capital funds decreased, with 865 funds raising $10.47 billion, a decline of 18% compared to 2023. The fundraising for encryption venture capital funds is under pressure, as allocators have reduced their commitments.

In 2024, fundraising for encryption venture capital funds was weak, with 79 new funds raising $5.1 billion, the lowest annual total since 2020. The median and average fund sizes have dropped to their lowest levels since 2017.

fund size trend

Historically, small funds (below $100 million) dominated in encryption venture capital, but since 2018, there has been a notable trend towards medium-sized funds ($100 million to $500 million). Large funds (over $1 billion) have not emerged in 2023-2024, facing challenges such as deployment difficulties and valuation risks.

Some well-known funds like Pantera Capital and Standard Crypto remain active and expand their business scope to areas such as AI. The Pantera Fund V plans to raise funds for the first time in July 2025, with a target of $1 billion.

The largest closed-end fund in 2024 is Fund III managed by Paradigm.

Investment projects worth关注 in 2024

1. Monad: A high-performance EVM compatible L1 blockchain
2. Farcaster: Decentralized Social Network
3. Berachain: Innovative Proof of Liquidity (PoL) Consensus Mechanism
4. Story Protocol: Reform Intellectual Property Management
5. 0G Labs: Combining blockchain scalability and AI-driven processes
6. Polymarket: Decentralized Prediction Market
7. EigenLayer: Ethereum Re-staking Market
8. Babylon: Combines Bitcoin's proof of work and proof of stake
9. Sentient: Decentralized AI Application Platform
10. Zama: Secure Data Processing on Blockchain Homomorphic encryption

future trends

AI integration, Bitcoin DeFi, and dedicated blockchains will dominate the development of the blockchain field. 0G Labs and Sentient are leading in the AI sector, while Babylon strengthens the role of Bitcoin in DeFi. Monad, Berachain, and Story Protocol are expected to launch their mainnets.

conclusion

In 2024, the performance of encryption venture capital is cautiously optimistic, with a rebound in fundraising activities and increased institutional interest. The trend of medium-sized funds and the dominance of emerging funds indicate that the industry is maturing and adapting. Despite facing short-term challenges, the focus on early investments and emerging trends such as AI integration demonstrates the industry's potential strength and future growth potential.