2024 Cryptocurrency Risk Investment Panorama Review: Infrastructure Project Financing Active, Fundraising Weak

In 2024, the encryption market experienced significant growth, mainly due to key milestones such as the launch of the spot Bitcoin ETF in January and the US political elections supporting encryption in November. The market capitalization of liquid encryption currencies reached $3.4 trillion by the end of the year, an 88% year-on-year increase. The market capitalization of Bitcoin approached $2 trillion by the end of the year, accounting for 62% of the total market increase. The Memecoin and AI token craze also boosted the market, particularly in activities on the Solana chain.

Despite the market recovery, the encryption venture capital sector still faces challenges. The venture capital opportunities provided by major trends such as Bitcoin, memecoins, and AI tokens are limited, primarily utilizing existing on-chain infrastructure. Previously popular areas such as DeFi, gaming, the metaverse, and NFTs have failed to attract a significant amount of new attention or capital. Mature infrastructure companies are facing fierce competition from traditional financial service institutions, especially in the context of the anticipated regulatory reforms from the new U.S. government.

Emerging trends such as stablecoins, tokenization, DeFi-TradFi integration, and encryption AI crossover show promise but are still in the early stages. At the same time, macroeconomic pressures such as high interest rates hinder high-risk allocations, particularly impacting the encryption venture capital industry. After the collapse of the encryption market in 2022, most comprehensive VC firms have remained cautious and stayed away from the encryption market.

Data shows that in the fourth quarter of 2024, venture capitalists invested $3.5 billion in encryption and blockchain startups, a quarter-on-quarter increase of 46%, but the number of transactions decreased by 13% to 416. The total investment for the year was $11.5 billion, with a total of 2153 transactions.

Analysts predict that by 2025, annual investments in the encryption market will exceed $18 billion, with multiple quarters surpassing $5 billion. The institutionalization of Bitcoin, the rise of stablecoins, and potential regulatory advancements in DeFi-TradFi integration will become key areas for future innovation.

Historically, there has been a strong correlation between Bitcoin prices and encryption startup investment volumes, but since January 2023, this correlation has noticeably weakened. Bitcoin has reached new highs, while venture capital activity struggles to keep pace. Possible reasons include institutional investors hesitating due to regulatory uncertainty and market volatility, a market narrative favoring Bitcoin that overshadows other opportunities, and the broader slump in the venture capital market.

In 2024, infrastructure-driven encryption venture capital attracted over 610 deals, reaching $5.5 billion, a year-on-year increase of 57%. Investment focuses include L2 scaling solutions, modular technology, liquid staking protocols, and developer tools. Financing for NFT and gaming startups reached $2.5 billion, slightly above 2023. Corporate blockchain financing plummeted by 69% to $164 million.

Web3 financing shows resilience, raising $3.3 billion over the past two years. DePIN has become a rapidly growing vertical, attracting over 260 deals and nearly $1 billion in funding. DeFi is set for a strong recovery in 2024, with over 530 financings, an increase of 85% year-on-year, with Bitcoin-based DeFi use cases being a key driving force.

Early-stage financing accounted for 60% of total capital investment, while later-stage financing accounted for 40%, a significant increase compared to 15% in the third quarter.

The most active investors in 2024 include Animoca Brands (over 100 transactions), OKX Ventures (over 80 transactions), Cogigent Ventures, Binance Labs, and Foresight Ventures (each with about 60 transactions). Active angel investors include Sandeep Nailwal, Paul Taylor, DCF God, Anatoly Yakovenko, among others.

Venture capital fundraising in 2024 has dropped to its lowest level in six years, with 865 funds totaling $104.7 billion, a decrease of 18% compared to 2023. The fundraising for encryption venture capital funds is weak, with 79 new funds raising $5.1 billion, the lowest since 2020. The median and average fund sizes have fallen to their lowest levels since 2017, reflecting a challenging fundraising environment.

In recent years, medium-sized funds (ranging from $100 million to $500 million) have dominated the encryption venture capital space. Large funds (over $1 billion) have not emerged in 2023-2024 due to deployment difficulties and valuation risks. Well-known funds like Pantera Capital and Standard Crypto remain active but have expanded their business scope.

Major funds raising over $100 million in 2024 include Paradigm Fund III, Pantera Fund V, among others. Notable investment projects include Monad, Farcaster, Berachain, Story Protocol, 0G Labs, and Polymarket, covering areas such as blockchain infrastructure, AI integration, and DeFi.

Key trends for the future include AI integration, DeFi on Bitcoin, and dedicated blockchains. 0G Labs and Sentient are leading in the AI field, while Babylon is strengthening Bitcoin's role in DeFi. Monad, Berachain, and Story Protocol are expected to launch their mainnets.

Overall, the venture capital landscape for encryption in 2024 is cautiously optimistic, with a rebound in fundraising activities and growing institutional interest. The shift towards mid-sized funds and the dominance of emerging funds indicate that the industry is maturing and adapting. Despite a short-term decline in venture capital, the continued focus on early-stage projects and emerging trends show that the ecosystem is resilient, and new growth momentum may be on the horizon.