Crypto Venture Capital Surges to $2.2 Billion in 2024 Amid Market Adjustments and Cautious Investor Sentiment

In 2024, despite some market uncertainty, crypto venture capital is on the rise. Over $2.2 billion has been raised across 24 funds. This is a welcome change after a slow 2023. According to data from PitchBook, the market is set to exceed last year's total of $2.6 billion.

Robert Le, a senior analyst at PitchBook, shared, “We’ve seen an upward trend quarter over quarter for the last three.” He added that we’re still in a capital-constrained environment. Typically, investments in crypto align with the performance of publicly traded tokens. Back in March, the market recovered to 93% of its previous peak in total market cap. However, we’re not seeing the same level of investment as before, particularly the $30 billion raised in the last cycle. Many investors feel cautious after past losses.

Macroeconomic issues, like inflation and rising interest rates, have affected investments in riskier assets like crypto. But Banafsheh Fathieh, co-founder and general partner at Lightspeed Faction, believes the crypto industry has made necessary adjustments. With the excesses of the last bull run behind us, investors are returning, but they’re being careful. Fathieh noted that early-stage investments now make up about 80% of the activity. She mentioned that the excitement of 2021 led to market distortions, but now we see a healthier approach to growth and innovation.

As the market stabilizes, investors are focusing on specific sectors with growth potential. Infrastructure, especially within the Solana ecosystem, is gaining attention. Matthew Graham, founder and managing partner at Ryze Labs, stated, “Solana is taking market share from Ethereum and others. We’re going to see more consumer-facing apps with real product-market fit emerge.”

Graham also highlighted the potential in consumer applications that blend gaming with practical use, mentioning fitness apps like STEPN. However, he cautioned investors to pay attention to revenue sources. Understanding whether returns come from tokens, equity, or hybrid models is key for long-term success.

Venture capitalists are also excited about DePINs (Decentralized Physical Infrastructure Networks). These networks coordinate machines and devices, like Helium, a blockchain-based wireless network; Hivemapper, a decentralized mapping network; and GEODNET, which focuses on improving location data accuracy. Rob Hadick, general partner at Dragonfly Capital, remarked, “All of those guys have started to show some ability to go to market on demand. We need to see that continue to grow.”

The potential of decentralized AI is also attracting interest. While some speculate that decentralized networks might replace cloud giants like AWS or Azure, Fanizadeh is cautious. “I don’t think that will happen, but there are places where crypto is critical technology.”

AI developers often mention that access to computing power is a major hurdle. Fanizadeh pointed out innovations like decentralized GPU marketplaces. These allow idle computing resources to be pooled for AI workloads. Another exciting area is where cryptography provides a verification layer, ensuring data and model integrity. This creates a vital mechanism for verification and authentication in AI.

Late-stage investments, which saw inflated valuations during the last bull run, are now under greater scrutiny. Hadick noted, “There’s been a recommitment to being more thoughtful about how much and at what price to put capital into.” While seed-stage valuations remain somewhat elevated, late-stage unicorns are trading at steep discounts. Non-token equity businesses are seeing discounts of about 60% or more. Companies like Chainalysis and Fireblocks are trading at discounts of 70%, and OpenSea is experiencing discounts as high as 90%.

Despite these markdowns, Fanizadeh believes quality companies will bounce back as the economic environment shifts. “Even if you have a contraction on the multiple side, if they are good businesses—and many of them are—they’ll have time to recover,” she said. “As interest rates change, you’ll start to see equity return to more normalized multiples.” In the meantime, investors are focusing more on seed-stage opportunities, where growth potential—and risk—are more pronounced.

Le from PitchBook expects to see a wave of first-time fund managers in the coming years. “Over the next year or two, we’re going to see many of these new funds come to market, marking a new cycle of innovation,” he said. The focus will shift toward sustainable, long-term growth instead of short-term hype.

The cyclical nature of the crypto market, tracked by PitchBook, often mirrors bitcoin’s halving events, which cut mining rewards in half. Historically, peaks in crypto fundraising have aligned with these cycles, with notable increases in 2014, 2018, and 2022. Le noted, “If these historical trends continue, we anticipate another fundraising peak in 2026, aligning with the next expected major cycle in the crypto market.”