Venture capital (VC) funding for crypto and blockchain startups experienced a decline in the third quarter of 2024. This decrease can be attributed in part to the rising popularity of bitcoin exchange-traded funds (ETFs), which offer investors an alternative way to gain exposure to the crypto industry. The United States leads the way in VC deals in the crypto space, followed by Singapore, the United Kingdom, the United Arab Emirates (UAE), and Switzerland.
Investors are flocking to bitcoin ETFs, with approximately $2.4 billion invested in 478 deals involving crypto and blockchain startups during the third quarter of 2024. According to the latest report from Galaxy Research, both the value of funds invested and the number of financed startups experienced a decline of around 20% and 17% respectively.
The report attributes the drop in VC investment to the significant investments seen in bitcoin ETFs since their approval. This shift towards bitcoin ETFs may indicate that some large investors prefer to gain exposure to the crypto sector through established and liquid investment vehicles rather than early-stage VC investing.
The research report highlights that early-stage startups accounted for a significant majority (85%) of the $2.4 billion in VC investment. Only 15% went to later-stage companies. The report also notes that crypto-focused VC funds have a unique advantage in securing funding for new deals due to their access to dry powder from previous large raises and their ability to source new deals from the renewed enthusiasm in the crypto industry.
In terms of valuations and deal sizes, the report shows that they have been on the rise since the second quarter, reaching their highest levels since 2022 in the third quarter. While this trend mirrors the broader VC landscape, the crypto sector appears to have rebounded more sharply.
The report also highlights the increasing interest from VC investors in crypto startups that specialize in artificial intelligence (AI), with investments in these startups increasing fivefold quarter-over-quarter. On the other hand, VC investment in the Web3/NFT/DAO/Metaverse/Gaming category experienced a significant decrease of 39%, the largest decline among all categories. However, Web3/NFT/DAO/Metaverse/Gaming projects still accounted for 25% of the total deal count with 120 deals.
The United States remains the preferred investment destination, with 43.5% of all VC deals being made with companies headquartered there. Singapore is the second highest ranked with 8.7%, followed by the United Kingdom with 6.8%. The UAE takes the fourth spot with 3.8%, and Switzerland completes the top five with 3% of all VC deals.
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