Originally published on: October 17, 2024
In the third quarter, crypto venture capital funding saw a significant drop of 20% to $2.4 billion, according to insights from Galaxy Digital. This decline was attributed to a market dynamic described as a “barbell market,” where the spotlight was on Bitcoin and high-risk memecoins, while mid-tier projects struggled to attract funding.
The report by Galaxy Digital’s head of research, Alex Thorn, and research analyst, Gabe Parker, highlighted a 17% decrease in deals made during Q3, totaling 478 transactions. Despite this dip, the $2.4 billion funding in Q3 marked a 21.5% increase from the same quarter in the previous year.
The dominance of Bitcoin and meme coins in the market has left many mid-tier projects looking for funding unrecognized, contributing to the overall venture stagnation. This “barbell market” trend has deterred large allocators from showing significant interest in the crypto market, resulting in a tepid environment for investments.
Galaxy’s report noted that the demand for spot Bitcoin exchange-traded funds by institutions like pension and hedge funds may have diverted their attention from early-stage crypto venture capital investing. This shift has disrupted the traditional correlation between Bitcoin’s price and VC funding observed over multiple years.
Despite the challenges faced by the crypto venture capital space, some sectors saw substantial growth in funding. Companies integrating artificial intelligence services experienced a five-fold increase in VC funding compared to the previous quarter. Notable contributions came from Sentient, CeTi, and Sahara AI, which raised significant amounts in Q3.
In terms of geographical distribution, the United States emerged as the leader, securing 56% of VC funding from 43.5% of the total deals in Q3. Other prominent regions included Singapore, the United Kingdom, the United Arab Emirates, and Switzerland.
Looking ahead, Galaxy Digital anticipates a potential acceleration in VC funding in Q4 and Q1 2025, fueled by falling interest rates and a more favorable regulatory environment. Stay tuned for more updates on the changing landscape of crypto funding and investment trends.
